UK Secured Personal Loans 2007 (Segment Report)

Published by: Datamonitor

Published: Oct. 8, 2007 - 62 Pages

Table of Contents

Overview

Catalyst

Summary

Executive Summary

Market Focus

Secured personal loans are secured against a borrower's property

Secured personal loans are generally taken out by customers with existing mortgages

The UK secured personal loans market performed well in 2006

After a difficult year in 2005, the market turned a corner in 2006

Sub-prime lending accounted for over a third of loans advanced in 2006

A strong housing market was key to the market's turnaround in 2006

Yet a number of products continue to compete against secured personal loans

In fact, the market is now at a crossroads in its development

Competitor Focus

The market is made up of two types of player

Specialist lenders dominate, but there will be greater involvement from mainstream lenders

Halifax, Picture Financial and GE Money Home Lending lead the market

Moreover, the market is becoming more competitive

But a number of lenders have withdrawn from the market amid the global credit crunch

On the distribution side, brokers nevertheless control the market

Intermediaries continue to account for the vast majority of loan originations

Lenders must therefore understand intermediaries in order to maximize business

Market Forecast

Datamonitor believes that the secured personal loans market portrays an encouraging future

Under the Datamonitor View scenario, the secured personal loans market will reach £10.2 billion in 2011

Conclusions

Table of Contents

Table of figures

Table of tables

Market Focus

Secured personal loans are secured against a borrower's property

Secured personal loans are generally taken out by customers with existing mortgages

The UK secured personal loans market performed well in 2006

After a difficult year in 2005, the market turned a corner in 2006

The latest figures from the FLA suggest the market has continued to do well into 2007

Sub-prime lending accounted for over a third of loans advanced in 2006

Still, the secured personal loans market remains small compared to other lending markets

A strong housing market was key to the market's turnaround in 2006

Resurgent house price growth acted as a stimulus to the market

House price growth has been strong so far in 2007, which will boost the secured personal loans market

Because secured loans are used as a debt consolidation tool, unsecured debt is also a driver of the market

Other macroeconomic factors have contributed to the market's performance

GDP growth picked up in 2006

Successive increases in the base rate have encouraged more consumers to consolidate their loans

Unemployment remains low

UK consumer spending improved during 2006

Yet a number of products continue to compete against secured personal loans

Remortgaging and further advances are major competitors of secured personal loans

Flexible mortgages are an increasingly competitive threat

Unsecured personal loans continue to be a strong competitor

Yet unsecured personal loans may become less competitive in an environment of rising interest rates

IVAs and DMPs are a small competitive threat

Greater education is necessary to ensure consumers take out these plans for the right reasons

In fact, the market is now at a crossroads in its development

The market's reputation is gradually improving

Impending regulatory change awaits and will have significant effects on the market

The market is regulated by the OFT, whereas the mortgage market is regulated by the FSA

In a positive step forward, all secured loans will be regulated by the OFT from April 2008

Yet the changes in early settlement charges that favor customers constrain lenders

European regulation could mean the market may become regulated by the FSA, but this is still some way off

The industry is awaiting the outcome of the Competition Commission's investigation into PPI

In addition, a new association was created to represent brokers in the market

Competitor Focus

The market is made up of two types of player

Specialist lenders dominate, but there will be greater involvement from mainstream lenders

Halifax, Picture Financial and GE Money Home Lending lead the market

Some mainstream lenders, including Halifax, have pulled out of the market in recent years

Halifax's exit will greatly affect the market

Yet Datamonitor believes that a number of mainstream lenders will enter the market over the next couple of years

Alliance & Leicester entered the market to capitalize on unsuccessful unsecured personal loan applicants

But lenders will need to ensure they do not cannibalize their other product offerings

There are now more lenders in the market than ever before

Advantage entered the market in June 2007

Breeze Loans entered the market in October 2006

Some investment banks have also entered the lending space

Moreover, the market is becoming more competitive

Price competition has increased as a result of the large number of competitors in the market

The intermediary channel in particular has become more competitive for lenders

Aggressive advertising continues to be a method of customer acquisition, although it has decreased

Innovation is nonetheless still lagging behind price in terms of importance and development

But a number of lenders have withdrawn from the market amid the global credit crunch

Kensington Personal Loans entered the market in 2006, but has since withdrawn temporarily

GMAC-RFC has abandoned its plans to enter the secured personal loans market in April 2008

Lehman Brothers closed down LMC and SPPL as it intends on a global restructure

On the distribution side, brokers nevertheless control the market

Intermediaries continue to account for the vast majority of loan originations

The market's historical non-standard and small nature are key to the high participation by brokers

Brokers that advertise the most tend to be the market leaders in the intermediary channel

Many brokers reduced their advertising expenditure over 2006

A number of changes are occurring within the intermediary market as competition intensifies

All types of Intermediaries are becoming more involved in the secured personal loans market

Some brokerages nevertheless have fared less well

A significant number of large brokerages have been bought up in recent years

Lenders must therefore understand intermediaries in order to maximize business

Competitive pricing and product suitability are most important to intermediaries when choosing a lender

Quick decisions on a loan application have become more important to intermediaries since last year

A wide lending criteria has also become more important to intermediaries since last year

Fees and commissions paid to intermediaries are the least important factors for intermediaries

Brokers can be tempted to choose other lenders by better pricing and faster turnarounds

Market Forecast

Datamonitor's forecasts consist of three different scenarios

Datamonitor uses three different scenarios of the UK economy

Datamonitor's bespoke forecasting model also considers drivers specific to secured personal loans

Datamonitor believes the secured personal loans market portrays an encouraging future

Under the Datamonitor View scenario, the secured personal loans market will reach £10.2 billion in 2011

Conclusions

APPENDIX

Supplementary data

Definitions

Bank of England base rate

Balances outstanding

CAGR

CCJ

First charge mortgages

Flexible mortgage

Gross advances

Individual voluntary arrangement (IVA)

Loan term

Loan-to-value (LTV)

Non-standard

Remortgaging

Secured personal loan/second charge mortgage

Unsecured personal loan

Methodology

Forecasting methodology

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Top nine lenders by secured personal loans advertising spend, 2005-06

Table 2: Share of secured personal loans advertising spend by medium, 2002-06

Table 3: Value and proportion of secured personal loans arranged directly and indirectly, 2006

Table 4: Top ten brokers by secured personal loans advertising spend, 2005-06 (£)

Table 5: Economic forecasts used in Datamonitor's forecasting model, 2006-11

Table 6: Secured personal loan gross advances under the three forecast scenarios, 2002-11 (£m)

Table 7: Secured personal loans gross advances and annual house price growth, 1997-2006

Table 8: Market shares of the leading lenders in the secured personal loans market, 2006

Table 9: Average secured personal loans price differential between the average typical APR and the Bank of England base rate, August 2003-August 2007 (%)

Table 10: How important are the following features in your choice of number one lender?

Table 11: How important are the following in tempting you to offer another competitor's loans more often?

Table 12: Secured personal loans advertising spend by media, 2002-06 (£m)

List of Figures

Figure 1: The secured personal loans market performed well in 2006

Figure 2: Halifax, Picture Financial and GE Money Home Lending lead the secured personal loans market in terms of gross advances in 2006

Figure 3: In terms of distribution, intermediaries accounted for over 65 per cent of all secured personal loan gross advances in 2006

Figure 4: In Datamonitor's View, the secured personal loans market portrays an encouraging future to 2011

Figure 5: The secured personal loans market performed well in 2006

Figure 6: Sub-prime lending accounted for a sizeable proportion of secured personal loan gross advances in 2006

Figure 7: The significant rise in house prices in the last 10 years has been crucial to the growth of the secured personal loans market, 1997-2006

Figure 8: Halifax, Picture Financial and GE Money Home Lending led the secured personal loans market in terms of gross advances in 2006

Figure 9: An increasing number of lenders have entered the market in the last few years

Figure 10: Secured personal loan price competition has increased in the last five years, stressed by falling price differential between the average typical APR and Bank of England base rate

Figure 11: Of lenders, Picture Financial was the biggest spender on secured personal loans advertising in 2006

Figure 12: Direct mail remains the most dominant form of secured personal loan advertising, 2002-06

Figure 13: In terms of distribution, intermediaries accounted for over 65 per cent of all secured personal loan gross advances in 2006

Figure 14: Of brokers, Capital One was the top spender on secured personal loans advertising in 2006

Figure 15: Competitive pricing and product suitability are most important to intermediaries when choosing their number one lender

Figure 16: The opportunity to offer better pricing and a faster turnaround are the main incentives for intermediaries to look at new lenders

Figure 17: In Datamonitor's View, the secured personal loans market portrays an encouraging future to 2011

Abstract

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