Secured Lending Products - UK - January 2008

Table of Contents

• Issues in the Market
• Key issues
• Abbreviations
• Market in Brief
• Secured lending shakes off credit fears
• Adspend on secured loans overtakes that of unsecured loans
• The ' Big Five' banks dominate both secured and unsecured personal lending, accounting for some 47% of the market in 2007
• ...however borrowers are increasing their use of ' other banks and building societies' rather than existing mortgage providers
• ...and the number of secured loan providers is shrinking
• The year of the Perfect Storm for brokers
• Signs of new activity among lenders
• APR is still the most important area of differentiation
• Home ownership levels high, however housing market growth slows
• ...and while consumer appetite for credit declines
• ...debt management companies continue to thrive
• Internal Market Environment
• Key Points
• Soaring property values boost market potential...
  • Figure 1: Average mix-adjusted UK house prices, 1997-2007
• ...but the good times could be coming to an end
• High levels of consumer debt...
• ...but the number of bankruptcies and IVAs shows a slight decline
  • Figure 2: Number of individual bankruptcy orders and IVAs in England and Wales (seasonally adjusted), Q1 2004-Q3 2007
• Lenders less receptive to IVAs...
• ...and insolvency practitioners have hit back
• The need for debt management services soars...
  • Figure 3: Advertising expenditure for debt management services, H1 2003-H1 2007
• ...shifting from unsecured to secured lending
• Banks respond to the credit crisis by tightening their lending criteria
• PPI criticisms have affected consumer confidence...
• ...and driven change within the supply sector
• Broader Market Environment
• Key Points
• The level of owner occupiers seems to have peaked at 70%
• Mortgage approvals decline further
  • Figure 4: Number of mortgages and remortgages, 2002-07
• A less certain housing market
• UK homes are thought to be overvalued
• BoE opts for an interest rate cut
  • Figure 5: BoE base rate, Sep 1990-Sep 2007
• However consumers still face difficult a difficult 2008
• Consumer Context
• Key Points
• Background
• Consumer confidence at a low ebb
  • Figure 6: Rolling monthly, three-monthly and annual UK consumer confidence indices, Jan 2000-Sep 2007
• Changing consumer intentions towards spending and saving
  • Figure 7: Intentions to save and spend in the next 12 months, 2002-07
• Debt repayment also in decline
  • Figure 8: Debt repayment, borrowing and net debt repayment, Sept 2002-Sept 2007
• The younger generation and low-income groups are less inclined to pay off existing debts
  • Figure 9: Debt repayment by age and socio-economic group, 2005-07
• Competitive Context
• Key Points
• Credit cards continue to dominate the market...
  • Figure 10: Credit cards: number of cards in issue, total and average annual transaction volumes and value, 2000-06
• ...but overdrafts are also on the rise
  • Figure 11: Overdraft advances to individuals by residual maturity* (major british banking groups only), 2000-06
• Growing secured lending sector -- declining spend on credit cards and unsecured personal loans
  • Figure 12: Total gross secured and unsecured consumer lending, 2000-07
  • Figure 13: Total gross unsecured consumer lending split by product category, 2000-07
• Unsecured loan market is ' tightening up' but penetration still high
• Uptake of alternative debt management solutions also high
• Sell and rent back
• Strengths and Weaknesses in the Market
  • Figure 14: Secured lending products -- strengths and weaknesses in the market, 2007
• Strengths in the market
• High levels of owner-occupancy and mortgage ownership
• The end of fixed-rate mortgage deals...
• ...as homeowners struggle to hold on to their homes
• Mortgage advances now heavily inclined towards debt consolidation
• More ' even-handed' regulation
• Weaknesses in the market
• Increasing uncertainty within the housing market
• Difficulties within the broader financial markets
• Declining consumer appetite for debt
• Reluctance on the part of many homeowners to place their homes at risk
• Market Size and Forecast
• Key Points
• Almost 2 million UK adults have a secured homeowner loan or further advance
  • Figure 15: Credit ownership, October 2007
• Market still growing
  • Figure 16: Size of the secured lending market, by sector and gross advances, 2003-07
• Forecast -- secured lending
• Wait and see?
  • Figure 17: Forecast of the size of the secured lending market, by sector and gross advances, 2003-12
• The consumer...
• ...and the market
• Factors used in the forecast
• Segment Performance
• Key points
• HEW and equity release become mainstream products
  • Figure 18: Housing equity withdrawal as a proportion of post-tax income (seasonally adjusted), Q1 2002-Q2 2007
• ...and demand is expected to increase
• Market Share
• Key Points
• The Big Five banks still dominate the overall personal loans market...
• ...but less loyalty in the secured loan sector
  • Figure 19: Source of secured lending, October 2007
• The biggest providers of further advances are the top mortgage lenders...
• ...but specialists have a major role to play
• Companies and Products
• Key Points
• The number of secured loan providers is shrinking
  • Figure 20: Major british banking groups, subsidiaries, and joint venture partnerships offering secured personal loans and/or further advances, Jan 2008
• Credit crunch repercussions continuing...
• ...and strategies are being reassessed
• Signs of new activity?
• APR is still the most important area of differentiation
  • Figure 21: Selected secured personal loan rates, as at January 2008
• Brand Communication and Promotion
• Key Points
• Adspend on personal loans has declined...
  • Figure 22: Personal loan adspend, by category, 2003-07
• ...a trend which has accelerated since the start of the credit crunch
• Intermediaries and brokers are casting a wider net
  • Figure 23: Personal loan adspend, by sector and media outlet, year to September 2007
• Branding still has a significant effect on consumer choice
• Financial firms' websites failing consumers
• Over half of the top 15 loan providers have reduced adspend since 2003
  • Figure 24: Secured personal loan adspend, by provider, 2003-07
• ...and all but two of the top ten intermediaries have reduced theirs
  • Figure 25: Intermediary adspend in the personal loans market, 2005-07
• Channels to Market
• Key Points
• The direct route...
• Mortgage lenders
• Finance Companies/Specialist Lenders
• ...versus the indirect route
• Brokers or originators
• Aggregators -- fast becoming a major force within the market
• Internet is still more about research than transactions
  • Figure 26: 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
• New providers enter the market, as old providers expand their services
• ...but pressures on margins are an issue
• The Consumer -- Credit Ownership
• Key Points
• About Mintel' s consumer research
  • Figure 27: Credit ownership, October 2007
• Unsecured lending dominates the overall credit market
• Credit ownership is higher among men than women
• Older consumers comfortable with unsecured debt...
• ...but less willing to take on debts secured on their home
  • Figure 28: Credit ownership, by socio-demographic groups, October 2007
• Uptake of secured/homeowner loans is low across all age groups
• Families and third-agers the biggest spenders
  • Figure 29: Credit ownership, by socio-demographic group, October 2007
• Mortgage holders have higher overall levels of debt
  • Figure 30: Credit ownership, by socio-demographic group, October 2007
• TV viewing belies adspend stats
  • Figure 31: Credit ownership, by Internet usage, newspaper readership and commercial TV viewing, October 2007
• The Consumer -- Motivation
• Key Points
• Car purchase key...
  • Figure 32: Reason for using secured credit products, October 2007
• ...but could this be a smokescreen?
• Men the ' kings of secured credit'
  • Figure 33: Reason for using secured credit products, by gender and age, October 2007
• Families, pre-families and lower earners more in need of financial fixes
  • Figure 34: Reason for using secured credit products, by socio-economic group, lifestage and household income, October 2007
• ' Other banks and building societies' the most popular source of secured lending products
  • Figure 35: Source of secured lending, October 2007
• Loyalty -- or differing requirements?
  • Figure 36: Source of secured lending, by gender and age, October 2007
• Low to medium earners are more likely to be tempted by offers from specialist lenders
  • Figure 37: Source of secured lending, by socio-economic group, lifestage and household income, October 2007