Personal Loans - UK

Published by: Mintel International Group Ltd.

Published: Dec. 1, 2007 - 85 Pages

Table of Contents

Issues in the Market

Key issues

Abbreviations

Market in Brief

The size of the personal loans market and other forms of borrowing

Figure 1: Estimated lending on unsecured personal loans, 2001-07

The big high street banks dominate the market

Figure 2: Personal loan market share by provider type, August 2007

Adspend in decline

High levels of consumer debt

Figure 3: Number of individual bankruptcy orders and IVAs in England and Wales (not seasonally adjusted), Q1 2004-Q2 2007

The potential loss of income from PPI

The impact of the ‘credit crunch’

Figure 4: Loan acceptance rates, Apr 2007-Oct 2007

Weaker consumer appetite for debt

Figure 5: Debt repayment, borrowing and net debt repayment, Sep 2002-Sep 2007

Some interesting trends exist regarding product ownership…

Figure 6: Consumer credit ownership, by lifestage, August 2007

… as well as consumer attitudes towards debt

Internal Market Environment

Key points

Debt problems are still a major concern…

…making them a high-profile subject in the media

Consumer bodies report growing problems…

…although insolvency figures dipped in 2007

Figure 7: Number of individual bankruptcy orders and IVAs in England and Wales (not seasonally adjusted), Q1 2004-Q2 2007

Changing legislation for those with debt problems

Debt management companies have a large part to play

Figure 8: Advertising expenditure for debt management services, H1 200-H1 2007

The government is taking action

PPI under increasing scrutiny

CAB, OFT and FSA investigating the market

Broader Market Environment

Key Points

Rising interest rates are likely to inflate loan rates

Figure 9: Bank of England base rate, 1997-2007

The population of people employed in the UK is rising

Figure 10: Size of total workforce and proportions employed, self-employed and unemployed, 2002-12

High disposable income and consumer spending fuels borrowing

Figure 11: PDI, consumer expenditure, savings and savings ratio (at current prices), 2002-12

A booming economy merely stoked the fire

And what about the impact of the global credit crunch?

Loan acceptance rates fall

Figure 12: Loan acceptance rates, Apr 2007-Oct 2007

Some lenders are leaving the market

Consumer Financial Activity

Key Points

Background

Consumer confidence at a major low point

Figure 13: Rolling monthly, 3-monthly and yearly UK consumer confidence indices, Jan 2000-Sep 2007

Employment prospects look favourable

Figure 14: Unemployment expectations and job availability, Jan 2006-Sep 2007

Changing consumer intentions towards spending and saving

Figure 15: Intentions to save and spend in the next 12 months*, Jan 2001-Sep 2007

Consumers are generally becoming less financially active…

Figure 16: Expected consumer activity in savings and investments, borrowing, and debt repayment, Mar 2006-Sep 2007

… with debt repayment showing a significant decline since mid-2004

Figure 17: Debt repayment, borrowing and net debt repayment, Sep 2002-Sep 2007

Intended consumer credit activity has dropped significantly

Figure 18: Intended consumer credit activities, Q3/Q4 2002-Q3/Q4 2007

The younger generation and low-income groups are less inclined to pay off existing debts

Figure 19: Debt repayment intentions, by age and socio-economic groups, 2005-07

Competitive Context

Key Points

Credit cards

Figure 20: Credit cards: number of cards in issue, total and average annual transaction volumes and value, 2000-06

Overdrafts

Figure 21: Overdraft advances to individuals by residual maturity* (MBBG only), 2000-06

Housing equity withdrawal

Figure 22: Housing equity withdrawal and housing equity withdrawl as a proportion of post-tax income (seasonally adjusted), Q1 2002-Q2 2007

Strengths and Weaknesses in the Market

Strengths in the market

An open market with high consumer choice

Data sharing means better risk profiling

High cross-selling potential

More responsible consumers

Weaknesses in the market

High level of bad debts

Weaker consumer appetite for borrowing

Possible loss of income from PPI

Banks tightening their lending criteria

The sustainability of price-based competition

Market Size and Forecast

Key Points

An estimated 5 million adults in the UK have a personal loan

Figure 24: Consumer credit ownership, August 2007

At the highest level, total gross unsecured lending is down

Figure 25: Total gross unsecured consumer lending, 2000-07

At product level, the demand for personal loans has fallen…

Figure 26: Total gross unsecured consumer lending split by product category, 2001-07

… with three years of decline

Figure 27: Estimated lending on unsecured personal loans, 2001-07

What does the future look like for personal loans?

Market forecast for unsecured personal loans

Figure 28: Forecast of total gross unsecured consumer lending split by product category, 2002-12 based on current prices

Factors used in this forecast

Market Share

Key Points

Lloyds TSB still has the dominant share of the personal loans market

Figure 29: Personal loan market share by company, August 2007

The top 5 banks still dominate the market

Figure 30: Personal loan market share by provider type, August 2007

Companies and Products

Key Points

To offset a weaker brand image, smaller providers tend to offer more competitive rates

Figure 31: Repayment terms for selected unsecured personal loans of £5,000 over 3 years, sorted by APR, September 2007

Personal pricing blurs comparisons

A diversity of players operate in this market

The big banks have a number of subsidiary brands

Figure 32: Top five MBBG companies and selected subsidiaries that offer undecured personal loans, 2007

Historic market prosperity has attracted (fairly) new entrants

Brand Communication and Promotion

Key Points

Personal loans is the third-largest advertising sector in financial services

Figure 43: Advertising expenditure on different financial services products, 2003/04-2006/07

Adspend on secured personal loans has overtaken expenditure on unsecured loans for the first time

Figure 44: Advertising expenditure on different types of personal loan, 2003/04-2006/07

Share of voice differs between secured and unsecured lenders

Figure 45: Top ten advertisers of secured and unsecured personal loans, 2003/04-2006/07

Unsecured loan providers use direct mail to attract customers whilst secured loan providers advertise on television

Figure 46: Advertising expenditure on secured and unsecured personal loans by media type, Jul 2006-Jun 2007

Channels to Market

Key Points

The Internet has proven to be a powerful consumer research tool as well as an increasingly popular channel of arrangement

Figure 47: Websites browsed for information purposes with a view to possibly buying and actually purchased from in the last three months (financial products only), Nov 2002-Jul 2007

Growing use of direct channels to arrange a loan

Different channels adopt a different pricing strategy

Aggregators are a highly influential force in the market…

Figure 48: Advertising expenditure of a selection of major financial price comparison websites, 2003/04-2006/07

… but the industry has been criticised recently over its ‘impartiality’

The Consumer: Product Ownership

Key Points

About Mintel’s consumer research

Credit cards still the most popular consumer credit product

Figure 49: Consumer credit ownership, August 2007

Men are the credit kings

Figure 50: Consumer credit ownership, by gender, August 2007

Live hard, die young… and keep on borrowing

Figure 51: Consumer credit ownership, August 2007

Insights and opportunities

Families with affordability issues?

Figure 52: Consumer credit ownership, by lifestage, August 2007

Middle income groups looking for lifestyle enrichment

Figure 53: Consumer credit ownership, August 2007

Major high street banks still dominate the market

Figure 54: Personal loan* market share by type of lender, August 2007

Shifting loan patterns?

Appendix

Product ownership

Figure 77: Consumer credit ownership, by demographic characteristics, August 2007

Attitudes towards borrowing and saving

Figure 78: Attitudes towards borrowing and saving, by demographic characteristics, August 2007

Channel of loan arrangement

Figure 79: Loan arrangement through current account provider, by demographic characteristics, August 2007

Awareness of PPI mis-selling

Figure 80: Awareness of PPI mis-selling allegations, by demographic characteristics, August 2007

Attitudes towards loans and borrowing in general

Figure 81: Consumer attitudes towards loans and borrowing in general, by demographic characteristics, August 2007, (part 1 of 2)

Figure 82: Consumer attitudes towards loans and borrowing in general, by demographic characteristics, August 2007, (part 2 of 2)

Consumers potentially in the market for a loan

Figure 83: Consumers who are in the potential market for a loan, by demographic characteristics, August 2007

Figure 84: Attitudes of consumers who are in the potential market for a loan, August 2007

Figure 85: Attitudes of consumers who are in the potential market for a loan, by demographic characteristics, August 2007, (part 1 of 2)

Figure 86: Attitudes of consumers who are in the potential market for a loan, by demographic characteristics, August 2007, (part 2 of 2)

Consumer typologies

Figure 87: Consumer typologies based on consumer credit ownership and attitudes towards borrowing and personal loans, by demographic characteristics, August 2007

Abstract

The personal loans market has enjoyed a period of sustained and fairly rapid growth since the credit boom of the early noughties. However, it would appear that the era of cheap and abundantly available credit is poised to end. According to Mintel estimates, consumer demand for unsecured personal loans has also declined in recent years. Aside from a weaker consumer appetite for borrowing generally, the two most significant threats to the personal loans industry at present are the ongoing investigation into the payment protection industry and the global ‘credit crunch’.

This report is very much focused on the current challenges facing the personal loans industry. This is portrayed through a number of different perspectives such as regulatory intervention, consumer sentiment and trade and media perspective. In addition, the report makes extensive reference throughout to the best available market data, and in so doing, attempts to span both the qualitative and quantitative aspects of the industry.

This report covers a wide spectrum of the personal loans market - it outlines the factors that influence demand for borrowing, as well as those that influence supply by limiting the profitability and attractiveness of the market. Key players in the market are examined alongside examples of new innovations and new product development in the sector. Finally, the report concludes with consumer research that provides insight into behaviour and attitudes towards personal loans and other types of borrowing.

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