Personal Loans - UK - December 2007

Table of Contents

• Issues in the MarketKey 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 2007Personal 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