UK Non-standard Unsecured Personal Loans 2008

Published by: Datamonitor

Published: Nov. 5, 2008 - 10 Pages

Table of Contents

Overview

Catalyst

Summary

Executive Summary

The number of non-standard individuals in the UK reached 7.2 million in 2007

Financial market instability affected the non-standard consumer base in 2007

Datamonitor predicts a steady increase in the non-standard population over the next five years

The non-standard unsecured personal loans market faced another difficult year in 2007

Gross advances have decreased significantly in recent years

Despite funding worries, Datamonitor predicts a slow and steady increase in the non-standard unsecured loans market

More individuals will become credit-impaired as the effects of the credit crunch start to impact consumers directly

Greater lending conservatism by mainstream banks will lead to an increase in the number of high-street credit applications being declined

The home collected credit market performed poorly in 2007

The big four players sustained their dominance in the market, although two main competitors are reducing their exposure

Table of Contents

Table of figures

Table of tables

The UK Non-standard Population

The number of non-standard individuals in the UK reached 7.2 million in 2007

A brief note on the definition of non-standard individuals

An element of subjectivity is needed with any definition of non-standard

The non-standard population rose by 73,000 in 2007 over 2006 levels

Changes in employment status proved the key driver for the recent increase in the population

Financial market instability affected the non-standard consumer base in 2007

Most factors contributing to the non-standard population slowed in 2007, thanks to a strong start to the beginning of the year

The number of CCJs issued in 2007 increased by 6.3%

Datamonitor predicts a steady increase in the non-standard population over the next five years

A country-wide recession in the short to medium-term will see an increase in the number of non-standard individuals

The UK non-standard Unsecured Personal Loans Market

The non-standard unsecured personal loans market faced another difficult year in 2007

Gross advances have decreased significantly in recent years

Balances outstanding have remained fairly stable

Funding issues caused the market to slow down during the second half of 2007

Many lenders have exited the unsecured personal loan market in the wake of the financial crisis

A shortage of cost-effective funding is placing huge pressure on the main non-standard players

Amid takeover rumors and debt refinancing concerns, Cattles applied for a banking license in an attempt to capture retail deposits

London Scottish Bank is expected to exit, or significantly reduce its exposure to, the market

More conservative lenders are weathering the storm and refocusing on their core profitable lines

Provident Financial splits from its international business and focuses yet more heavily on home collected credit and Vanquis Bank

Impairment provisions set to increase as recession brings on greater default risk

Despite funding worries, Datamonitor predicts a slow and steady increase in the non-standard unsecured loans market

More individuals will become credit-impaired as the effects of the credit crunch start to impact consumers directly

Greater lending conservatism by mainstream banks will lead to an increase in the number of high-street credit applications being declined

The UK Home Collected Credit Market

Home collected credit fills an important niche for small amounts of unsecured credit

The home credit market is a sub-sector of the non-standard unsecured personal loans market

Home collected credit provides short term, unsecured cash loans typically in the region of £200 to £400

The home collected credit market performed poorly in 2007

Datamonitor's methodology for sizing the home collected credit market is based on two measures

Home collected credit balances have remained stagnant

Home collected credit advances have declined by almost 3% since 2003

Over the last five years, home collected credit has declined relative to the performance of other lending markets

The competitive dynamics of the home collected credit market are set to change

The big four players sustained their dominance in the market, although two main competitors are reducing their exposure

Provident Financial extended its dominance of the home collected credit market, capturing an additional 5% of market share in 2007

S&U consolidates its three brands to promote one consistent message

Many lenders have left or are exiting the market due to the lack of availability of funding and the threat of increasing impairment

Provident Financial looks set to dominate the market as other competitors withdraw or reduce exposure

Competitors claim that unique insight into individual customer risk will protect the market during a recession, despite stagnant performance

Although LendersCompared.org.uk is likely to increase price competitiveness in the market, this will not be as much as previously thought

The LendersCompared site only allows price comparisons based on specific customer-input criteria

Datamonitor predicts further decline in the market, except in the most optimistic of circumstances

Under the Datamonitor view scenario, the home collected credit market is forecasted to decrease slowly up to 2012

Under the optimistic scenario, the home collected credit market is forecasted to decline more heavily over the next five years

Under the pessimistic scenario, the home collected credit market is forecasted to grow very little over the next five years

APPENDIX

Supplementary data

Data tables relating to the UK non-standard population chapter

Data tables relating to the UK non-standard unsecured personal loans market chapter

Data tables relating to the UK home collected credit market chapter

Definitions

AAGR

Balances outstanding

Bank of England base rate

CAGR

CCJs

Gross advances

Non-standard

Research methodology

Sizing methodology for the UK non-standard population

Reasons for credit rejection

Elimination of double counting

Datamonitor uses seven steps to size the UK non-standard population

Bankrupts are excluded because of double counting

Datamonitor's forecasting model calculates home credit's penetration of the non-standard population

Datamonitor's bespoke forecasting model also considers drivers specific to home collected credit

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: UK non-standard population forecast under Datamonitor view, 2007-12f

Table 2: Home collected credit market shares, 2004-07

Table 3: Forecasted gross advances for the UK home collected credit market under Datamonitor view, 2007-12f

Table 4: Forecasted gross advances for the UK home collected credit market under the optimistic scenario, 2007-12f

Table 5: Forecasted gross advances for the UK home collected credit market under the pessimistic scenario, 2007-12f

Table 6: UK non-standard population, 2003-07

Table 7: UK non-standard population forecast under the optimistic scenario, 2007-12f

Table 8: UK non-standard population forecast under the pessimistic scenario, 2007-12f

Table 9: UK non-standard and mainstream unsecured personal loan gross advances, 2003-07

Table 10: UK non-standard unsecured personal loan balances outstanding, 2003-07

Table 11: UK non-standard unsecured loan advances forecast under the Datamonitor view, £m

Table 12: Comparison of UK lending market CAGR performance, 2003-07

Table 13: UK home collected credit, balances outstanding and gross advances, 2004-07 (£m)

Table 14: UK home collected credit indexed balances outstanding for major players, 2004-07

Table 15: UK home collected credit market shares by balances, 2003-07

List of Figures

Figure 1: Under the Datamonitor view, the non-standard population will increase steadily over the next five years, 2007-12f

Figure 2: Non-standard unsecured lending has decreased significantly in the last three years

Figure 3: Under the Datamonitor view, gross advances in the non-standard unsecured personal loan market will increase steadily through to 2012

Figure 4: Provident and S&U have aggressively targeted home collected credit in recent years, while other competitors have sought to reduce exposure

Figure 5: Datamonitor's definition of non-standard

Figure 6: A certain degree of subjectivity is needed in a definition of the non-standard population because, inevitably, some lenders are willing to accept greater risk than others

Figure 7: The UK non-standard population has increased significantly in the last two years

Figure 8: CCJs and mortgage arrears contributed to the decrease in non-standard individuals over the past five years, but were balanced by an increase in unemployment, 2003-07

Figure 9: Under the Datamonitor view, the non-standard population will increase steadily over the next five years, 2007-12f

Figure 10: Non-standard unsecured lending has decreased significantly in the last three years

Figure 11: Non-standard unsecured loan balances have fluctuated over the past three years

Figure 12: Under the Datamonitor view, gross advances in the non-standard unsecured personal loan market will increase steadily through to 2012

Figure 13: Home collected credit balances outstanding grew marginally, while gross advances declined in 2007

Figure 14: The home collected credit market has declined substantially in the past five years

Figure 15: Compared to most other lending markets, the home collected market has performed poorly over the last five years, 2003-07

Figure 16: Provident and S&U have aggressively targeted home collected credit in recent years, while other competitors have sought to reduce exposure

Figure 17: Provident Financial now commands 65% of the home collected credit market, 2007

Figure 18: LendersCompared.org.uk minimizes rate shopping by filtering search results

Figure 19: Under the Datamonitor view scenario, the home collected credit market is forecasted to decrease slowly up to 2012

Figure 20: Under the optimistic scenario, the home collected credit market is forecasted to decline more heavily over the next five years

Figure 21: Under the pessimistic scenario, the home collected credit market is forecasted to grow very little over the next five years

Abstract

• Sizes the UK non-standard population, the UK unsecured loans market and home collected credit market and presents five year forecasts for each.
• Discusses competition in the UK unsecured loan market and provides market share data for the major competitors in the home collected credit market.
• Gives insight into the future challenges of these markets.

• Understand how the non-standard market is changing and where the new opportunities lie.
• Draw on Datamonitor's five-year scenario-based forecasts to plan your future strategy with confidence.
• Gives you a competitive edge by providing you with a thorough analysis of the UK non-standard unsecured lending market.

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