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Consumer Attitudes towards Debt - UK - August 2011

This report examines the change in consumer attitudes towards debt, as well as putting consumer indebtedness into context. It also looks at the role that debt plays in overall financial wellbeing, highlighting the vicious cycle that sees some people being forced to borrow to make ends meet, only to find themselves in even deeper financial difficulties once the credit card bill comes through.

Three distinct consumer segments are identified, ranging from the well-prepared, who have had little need to change their attitudes towards borrowing because their pre-crisis behaviour was already pretty prudent, to the new puritans, who have been shocked into changing the way in which they manage their finances. On the supply side, the post-crisis changes in the lending market are assessed, as is the impact on bad debt and mortgage arrears.

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The credit market
            • New consumer credit lending stagnates
              • Figure 1: Gross new consumer credit, 2005-11 (seasonally adjusted)
            • Mortgage lending finds a post-crunch equilibrium
              • Figure 2: Gross new mortgage lending, 2005-11 (seasonally adjusted)
            • Consumer credit ownership
              • Type of credit owned
                • Outstanding balances
                  • Figure 3: Outstanding secured borrowing, May 2011
                  • Figure 4: Outstanding unsecured borrowing, May 2011
                • Attitudes towards borrowing
                  • Two thirds say they are totally in control of their borrowing
                    • Figure 5: Attitudes towards debt, May 2011
                  • Elevated concerns among unsecured borrowers
                    • Figure 6: Debt concerns, by level of outstanding consumer credit, May 2011
                  • The impact of the recession on attitudes towards debt
                    • The slowdown convinces people to look again at their borrowing
                      • Figure 7: Consumers' attitudes towards spending, borrowing and saving in a recession, May 2011
                    • The new puritans of the financial services world
                      • Figure 8: Key consumer groups, May 2011
                    • What we think
                    • Issues in the Market

                        • Do people feel that their borrowing is out of control?
                          • Are younger people learning from the slowdown?
                            • Who is at greatest risk of financial meltdown?
                              • Has the behaviour of a minority obscured broader attitudes towards financial prudence?
                                • Are people changing behaviour because they want to, or because they have to?
                                • Future Opportunities

                                  • Learning from the well-prepared
                                    • Indulging your future self
                                    • Economic Outlook

                                      • Key points
                                        • Impact of the economy on credit markets
                                          • Savings ratio is up
                                            • Figure 9: Savings ratio, 2005-11
                                          • The income squeeze plays a huge role in consumer wellbeing
                                            • Figure 10: RPI and average weekly earnings, 2005-11
                                          • An anaemic recovery
                                            • Figure 11: UK GDP, Q1 2008-Q2 2011
                                          • Unemployment starts to edge downwards
                                            • Figure 12: UK headline unemployment rate, 2005-11
                                        • Financial Wellbeing

                                          • Key points
                                            • The pressed majority and the 80/20 rule
                                              • Figure 13: Current financial situation, July 2011
                                            • Sentiment still below that seen during the recession
                                              • Figure 14: ‘My financial situation is healthy – I have money left at the end of the month for a few luxuries or to add to my savings’, 2009-11
                                            • Most have been hit by the slowdown – but most have found it manageable
                                              • Figure 15: Impact of the slowdown, July 2011
                                              • Figure 16: ‘I haven’t really been affected by the slowdown’, 2009-11
                                            • Qualified confidence for the coming year...
                                              • Figure 17: Financial confidence over the coming year, July 2011
                                            • …but confidence is still down on levels seen in the recession
                                              • Figure 18: ‘I feel pretty confident that I’ll be OK’, 2009-11
                                          • Consumer Credit Trends

                                            • Key points
                                              • Putting consumer credit in context
                                                  • Figure 19: Gross new consumer credit, 2005-11 (seasonally adjusted)
                                                • Consumers pay back £1 billion of non-card consumer credit since 2009
                                                    • Figure 20: Net new consumer credit, 2005-11 (seasonally adjusted)
                                                  • The gulf in net and gross lending reflects card usage patterns
                                                    • Figure 21: Consumer attitudes towards managing credit cards, May 2011
                                                • Mortgage Market Trends

                                                  • Key points
                                                    • The mortgage market remains in the doldrums
                                                      • Figure 22: Gross new mortgage lending, 2005-11 (seasonally adjusted)
                                                    • Net lending collapses
                                                      • Figure 23: Net new mortgage lending, 2005-11 (seasonally adjusted)
                                                    • The end to the housing holiday fund
                                                      • Figure 24: Housing equity withdrawal, 2005-11
                                                  • Write-offs, Repossessions and Arrears

                                                    • Key points
                                                      • Repossessions rise: but don’t soar
                                                        • Figure 25: Mortgage arrears and repossessions, Q1 2008-Q2 2011
                                                      • Some concerns about the long-term impact of forbearance...
                                                        • ...and of rises in interest rates
                                                          • Signs of strain among credit card borrowers
                                                            • Figure 26: Write-offs of loans to individuals, 2005-10
                                                        • Credit Ownership

                                                          • Key points
                                                            • Most people have outstanding borrowing...
                                                              • Figure 27: Type of credit held, May 2011
                                                            • ...and a quarter owe money on at least three different product types
                                                              • Figure 28: Repertoire of types of credit held, May 2011
                                                              • Figure 29: Repertoire of types of credit held, by product, May 2011
                                                            • The signs of financial strain start to show
                                                              • Figure 30: Type of credit held, by financial situation at the moment, May 2011
                                                            • Even higher earners need a little help from time to time
                                                              • Figure 31: Most popular type of credit held, by demographics, May 2011
                                                          • Level of Outstanding Credit

                                                            • Key points
                                                              • Mortgage debt
                                                                • A quarter say they have more than £100,000 of mortgage debt...
                                                                  • Figure 32: Outstanding secured borrowing, May 2011
                                                                • ...with debt levels much higher among the better off
                                                                  • Figure 33: Outstanding secured borrowing, by demographics, May 2011
                                                                • Consumer credit
                                                                  • The skewed distribution of outstanding balances
                                                                    • Figure 34: Outstanding unsecured borrowing, May 2011
                                                                  • Over-borrowing among lower earners?
                                                                    • Figure 35: Outstanding unsecured borrowing, by demographics, May 2011
                                                                  • Three in ten of those who are struggling owe at least £10,000
                                                                    • Figure 36: Outstanding unsecured borrowing, by financial situation at the moment, May 2011
                                                                • Managing Credit Use

                                                                  • Key points
                                                                    • Borrowers are concerned…
                                                                      • Figure 37: Borrowers’ attitudes towards their debts, May 2011
                                                                    • …but most say that they are still in control
                                                                      • Reducing debt into bite-sized chunks
                                                                        • The type of debt matters…
                                                                          • Figure 38: Borrowers’ attitudes towards their debts, by type of credit held, May 2011
                                                                        • …but it’s the total debt burden that makes the biggest difference
                                                                          • Figure 39: Debt concerns, by level of outstanding consumer credit, May 2011
                                                                        • Running to stand still
                                                                          • Figure 40: Debt reduction, by level of outstanding consumer credit, May 2011
                                                                        • Problem borrowing hitting the vulnerable
                                                                          • Figure 41: Borrowers’ attitudes towards their debts, by financial situation at the moment, May 2011
                                                                      • Credit and the Slowdown

                                                                        • Key points
                                                                          • The impact of the slowdown
                                                                              • Figure 42: Consumers' attitudes towards spending, borrowing and saving, May 2011
                                                                            • Are younger people learning from the slowdown?
                                                                              • Higher incomes don’t always mean financial security
                                                                                • The strain is showing among unsecured borrowers
                                                                                  • Figure 43: Consumers' attitudes towards spending, borrowing and saving, by most popular type of credit held, May 2011
                                                                                • The polarisation of the credit market
                                                                                  • Figure 44: Consumers' attitudes towards spending, borrowing and saving, by outstanding secured borrowing, May 2011
                                                                                  • Figure 45: Consumers' attitudes towards spending, borrowing and saving, by outstanding unsecured borrowing, May 2011
                                                                                • The strugglers dig themselves deeper into trouble
                                                                                  • Figure 46: Consumers' attitudes towards spending, borrowing and saving, by financial situation at the moment, May 2011
                                                                              • Financial Resilience

                                                                                • Key points
                                                                                  • ‘Neither a borrower nor a lender be’
                                                                                    • Figure 47: Consumers' attitudes towards spending, borrowing and saving, May 2011
                                                                                  • Time to learn from more experienced budgeters
                                                                                    • Figure 48: Consumers' attitudes towards spending, borrowing and saving, by demographics, May 2011
                                                                                  • Families are paying now, worrying about it later
                                                                                    • Most borrowers have good intentions when it comes to spending
                                                                                      • Figure 49: Consumers' attitudes towards spending, borrowing and saving, by most popular type of credit held, May 2011
                                                                                    • Little margin for error among the most heavily indebted
                                                                                      • Figure 50: Consumers' attitudes towards spending, borrowing and saving, by outstanding secured borrowing, May 2011
                                                                                      • Figure 51: Consumers' attitudes towards spending, borrowing and saving, by outstanding unsecured borrowing, May 2011
                                                                                    • Living from pay cheque to pay cheque
                                                                                      • Figure 52: Consumers' attitudes towards spending, borrowing and saving, by financial situation at the moment, May 2011
                                                                                  • Segmenting the Market

                                                                                    • Key points
                                                                                      • How financial strain can lead to short-term thinking
                                                                                        • Figure 53: Key consumer groups, May 2011
                                                                                      • Joining the ranks of the newly-prudent
                                                                                        • Figure 54: Consumers' attitudes towards spending, borrowing and saving, by target groups, May 2011
                                                                                      • Good financial planning starts to pay off
                                                                                        • Figure 55: Financial situation at the moment, by target groups, May 2011
                                                                                      • Half of Stretched borrowers worry about their debts
                                                                                        • Figure 56: Borrowers’ attitudes towards their debts, by target groups, May 2011
                                                                                      • Proof that credit needn’t be problematic
                                                                                        • Figure 57: Type of credit held, by target groups, May 2011
                                                                                      • High unsecured balances among the Stretched
                                                                                        • Figure 58: Outstanding secured borrowing, by target groups, May 2011
                                                                                        • Figure 59: Outstanding unsecured borrowing, by target groups, May 2011
                                                                                    • Appendix – Credit Ownership

                                                                                        • Figure 60: Most popular type of credit held, by demographics, May 2011
                                                                                        • Figure 61: Next most popular type of credit held, by demographics, May 2011
                                                                                        • Figure 62: Other type of credit held, by demographics, May 2011
                                                                                        • Figure 63: Repertoire of types of credit held, by demographics, May 2011
                                                                                        • Figure 64: Type of credit held, by financial situation at the moment, May 2011
                                                                                    • Appendix – Level of Outstanding Credit

                                                                                        • Figure 65: Outstanding secured borrowing, by demographics, May 2011
                                                                                        • Figure 66: Outstanding unsecured borrowing, by demographics, May 2011
                                                                                        • Figure 67: Outstanding secured borrowing, by financial situation at the moment, May 2011
                                                                                        • Figure 68: Outstanding unsecured borrowing, by financial situation at the moment, May 2011
                                                                                    • Appendix – Managing Credit Use

                                                                                        • Figure 69: Agreement with the statements ‘I am a little bit worried about the amount of debt that I’ve got’ and ‘At the moment, I’m not making much of a dent in the total amount I owe’, by demographics, May 2011
                                                                                        • Figure 70: Agreement with the statements ‘I’m totally in control of my borrowing’ and ‘I could clear my (non-mortgage) debts tomorrow if I wanted to’, by demographics, May 2011
                                                                                        • Figure 71: Agreement with the statement ‘I focus more on how much I’m repaying each month than on the total amount I owe’, by demographics, May 2011
                                                                                        • Figure 72: Borrowers’ attitudes towards their debts, by most popular type of credit held, May 2011
                                                                                        • Figure 73: Borrowers’ attitudes towards their debts, by next most popular type of credit held, May 2011
                                                                                        • Figure 74: Borrowers’ attitudes towards their debts, by outstanding secured borrowing, May 2011
                                                                                        • Figure 75: Borrowers’ attitudes towards their debts, by outstanding unsecured borrowing, May 2011
                                                                                        • Figure 76: Borrowers’ attitudes towards their debts, by financial situation at the moment, May 2011
                                                                                    • Appendix – Credit and the Slowdown

                                                                                        • Figure 77: agreement with the statements ‘The recession has made me reassess my attitudes towards borrowing money’ and ‘I have had to borrow money to make ends meet over the last year or so’, by demographics, May 2011
                                                                                        • Figure 78: Consumers' attitudes towards spending, borrowing and saving, by most popular type of credit held, May 2011
                                                                                        • Figure 79: Consumers' attitudes towards spending, borrowing and saving, by next most popular type of credit held, May 2011
                                                                                        • Figure 80: Consumers' attitudes towards spending, borrowing and saving, by other type of credit held, May 2011
                                                                                        • Figure 81: Consumers' attitudes towards spending, borrowing and saving, by outstanding secured borrowing, May 2011
                                                                                        • Figure 82: Consumers' attitudes towards spending, borrowing and saving, by outstanding unsecured borrowing, May 2011
                                                                                        • Figure 83: Consumers' attitudes towards spending, borrowing and saving, by financial situation at the moment, May 2011
                                                                                    • Appendix – Financial Resilience

                                                                                        • Figure 84: agreement with the statements ‘If I can’t afford to buy something without borrowing money, then I won’t buy it’ and ‘I’ve got some savings that I could draw on in case of emergencies’, by demographics, May 2011
                                                                                        • Figure 85: Agreement with the statement ‘I tend to spend now and worry about it later’, by demographics, May 2011
                                                                                        • Figure 86: Consumers' attitudes towards spending, borrowing and saving, by most popular type of credit held, May 2011
                                                                                        • Figure 87: Consumers' attitudes towards spending, borrowing and saving, by next most popular type of credit held, May 2011
                                                                                        • Figure 88: Consumers' attitudes towards spending, borrowing and saving, by other type of credit held, May 2011
                                                                                        • Figure 89: Consumers' attitudes towards spending, borrowing and saving, by outstanding secured borrowing, May 2011
                                                                                        • Figure 90: Consumers' attitudes towards spending, borrowing and saving, by outstanding unsecured borrowing, May 2011
                                                                                        • Figure 91: Consumers' attitudes towards spending, borrowing and saving, by financial situation at the moment, May 2011
                                                                                    • Appendix – Segmenting the Market

                                                                                        • Figure 92: Key consumer groups, by demographics, May 2011
                                                                                        • Figure 93: Type of credit held, by target groups, May 2011
                                                                                        • Figure 94: Outstanding secured borrowing, by target groups, May 2011
                                                                                        • Figure 95: Outstanding unsecured borrowing, by target groups, May 2011
                                                                                        • Figure 96: Borrowers’ attitudes towards their debts, by target groups, May 2011
                                                                                        • Figure 97: Consumers' attitudes towards spending, borrowing and saving, by target groups, May 2011
                                                                                        • Figure 98: Financial situation at the moment, by target groups, May 2011

                                                                                    Companies Covered

                                                                                    • Lehman Brothers [UK]
                                                                                    • Northern Rock plc
                                                                                    • Student Loans Company Ltd

                                                                                    Consumer Attitudes towards Debt - UK - August 2011

                                                                                    £2,195.00 (Excl.Tax)