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Consumer Attitudes towards Debt - UK - July 2017

“Cheap loans and attractive credit card deals have fuelled a boom in unsecured lending since the recession. However, the economic fallout from Brexit means consumers are already feeling the squeeze of a combination of rising prices and slow wage growth. As a result, more consumers are likely to turn to revolving credit for day-to-day spending. However, consumers will also take a more cautious approach to their finances, becoming more reluctant to commit to structured lending products, making it more difficult to sell personal loans.”

– Rich Shepherd, Senior Financial Services Analyst

This report will cover the following areas:

  • Surge in micro-debts points to the first signs of difficulty
  • On balance, Brexit is expected to cause problems for borrowers
  • Will Open Banking make it easier for challengers to compete?

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Table of contents

  1. Overview

    • What you need to know
      • Definitions
      • Executive Summary

          • The market
            • Low rates mean credit is still attractive despite gathering clouds
              • Figure 1: UK interest rates, January 2012 – May 2017
              • Figure 2: Annual inflation rate, RPI and CPI, Q3 2007 – Q1 2017
            • Consumer confidence is starting to fall
              • Figure 3: The financial confidence index, January 2016 – May 2017
            • Gross consumer credit lending reached £260.2 billion in 2016
              • Figure 4: Annual gross and net credit card lending, not seasonally adjusted, 2010-2016
              • Figure 5: Annual gross and net other consumer credit lending, not seasonally adjusted, 2010-2016
            • The consumer
              • 61% of consumers have outstanding unsecured debts
                • Figure 6: Credit product ownership, May 2017
              • Micro-debts have increased in the last year
                • Figure 7: Amount owed on unsecured credit products, May 17
              • Paying off debt is the priority for most
                • Figure 8: Plans for credit use/repayment in the next two years, May 2017
              • Consumers are largely undecided on the impact of Brexit
                • Figure 9: Anticipated effects of Brexit on credit markets, May 2017
              • Cost is key when choosing a credit product but brand is still a factor
                • Figure 10: Attitudes towards debt, May 2017
              • Credit cards are the favoured form of credit
                • Figure 11: Preferred form of credit for different purchases, May 2017
              • What we think
              • Issues and Insights

                • Surge in micro-debts points to the first signs of difficulty
                  • The facts
                    • The implications
                      • On balance, Brexit is expected to cause problems for borrowers
                        • The facts
                          • The implications
                            • Will Open Banking make it easier for challengers to compete?
                              • The facts
                                • The implications
                                • The Market – What You Need to Know

                                  • Low rates mean credit is still attractive despite gathering clouds
                                    • Consumer confidence is starting to fall
                                      • Gross consumer credit lending reached £260.2 billion in 2016
                                        • Mortgage lending is expected to slow
                                          • Write-offs and bankruptcies fell again last year
                                          • Economic Outlook

                                            • GDP growth fell to 0.2% in Q1 2017
                                              • Figure 12: Gross domestic product, quarterly change (seasonally adjusted), Q1 2012 – Q1 2017
                                            • Rising prices put the squeeze on consumers…
                                              • Figure 13: Annual inflation rate, RPI and CPI, Q3 2007 – Q1 2017
                                            • …as wage growth fell last year
                                              • Figure 14: Annual wage growth, UK, 2007-2016
                                            • Interest rates remain attractive for borrowers
                                              • Figure 15: UK interest rates, January 2012 – May 2017
                                            • Unemployment fell throughout 2016
                                              • Figure 16: UK unemployment rate, Q3 2007 – Q1 2017
                                            • A note on Brexit
                                            • Consumer Financial Well-being

                                              • Inflation has hit financial well-being
                                                  • Figure 17: The financial well-being index, January 2016 – May 2017
                                                  • Figure 18: Current financial situation, May 2017
                                                • Most consumers’ finances are about the same as last year…
                                                    • Figure 19: Changes in household finances, January 2016 – May 2017
                                                    • Figure 20: Changes in household finances, May 2017
                                                  • … but confidence for next year is dropping
                                                      • Figure 21: The financial confidence index, January 2016 – May 2017
                                                      • Figure 22: Consumer sentiment for the coming year, May 2017
                                                  • Consumer Credit Lending

                                                    • Gross lending continues to grow
                                                        • Figure 23: Monthly gross and net unsecured lending to individuals, excluding the Student Loans Company, not seasonally adjusted, January 2010 – April 2017
                                                      • Credit card balances increased by £5.5 billion in 2016
                                                        • Figure 24: Annual gross and net credit card lending, not seasonally adjusted, 2010-2016
                                                      • Growth in loan lending is expected to slow
                                                          • Figure 25: Annual gross and net other consumer credit lending, not seasonally adjusted, 2010-2016
                                                      • Mortgage Market Lending

                                                        • Mortgage lending was boosted by a surge in BTL sales in 2016
                                                          • Figure 26: Gross and net mortgage lending, not seasonally adjusted, 2012-16
                                                        • Mortgage approvals fell after the EU referendum
                                                          • Figure 27: Quarterly number of mortgage approvals, by purpose, not seasonally adjusted, Q1 2012 – Q1 2017
                                                      • Write-offs, Repossessions and Insolvencies

                                                        • Write-offs fall despite credit card rise
                                                          • Figure 28: Value of write-offs to loans to individuals, not seasonally adjusted, 2012-16
                                                        • Mortgage arrears and repossessions stable through 2016
                                                          • Figure 29: Quarterly repossessions and mortgage arrears (at least 2.5%), Q1 2012 – Q1 2017
                                                        • Rise in IVAs fuels increase in all insolvencies
                                                          • Figure 30: Individual insolvencies in England and Wales, by type, not seasonally adjusted, 2012-16
                                                        • Online bankruptcies help to remove stigma
                                                          • Figure 31: Individual bankruptcies in England and Wales, by petition type, not seasonally adjusted, 2012-16
                                                      • The Consumer – What You Need to Know

                                                        • 61% of consumers have outstanding unsecured debts
                                                          • Micro-debts have increased in the last year
                                                            • Paying off debt is the priority for most
                                                              • Consumers are largely undecided on the impact of Brexit
                                                                • Cost is key when choosing a credit product but brand is still a factor
                                                                  • Credit cards are the favoured form of credit
                                                                  • Credit Product Ownership

                                                                    • 61% of consumers have outstanding unsecured debts
                                                                      • Figure 32: Credit product ownership, May 2016 vs May 2017
                                                                    • 25-44-year-olds are the most likely to have unsecured debt
                                                                      • Figure 33: Credit product ownership, by age, May 2017
                                                                    • Hard-up consumers most likely to use an overdraft or borrow from peers
                                                                      • Figure 34: Ownership of selected unsecured credit products, by current financial situation, May 2017
                                                                    • Half of those with unsecured debt only have one type of product
                                                                      • Figure 35: Unsecured credit product ownership, repertoire analysis, May 2017
                                                                      • Figure 36: Unsecured credit product ownership, by number of unsecured credit products owned, May 2017
                                                                  • Level of Outstanding Unsecured Debt

                                                                    • Micro-debts have increased in the last year
                                                                      • Figure 37: Amount owed on unsecured credit products, 2012-17
                                                                    • More well-off consumers more likely to have larger unsecured debts
                                                                      • Figure 38: Amount owed on unsecured credit products, by gross annual household income, May 2017
                                                                  • Expected Debt Situation in the Next Two Years

                                                                    • Paying off debt is the priority for most
                                                                        • Figure 39: Plans for credit use/repayment in the next two years, May 2017
                                                                      • Card users are less sure about their plans for credit use
                                                                        • Figure 40: Plans for credit use/repayment in the next two years, by amount owed on unsecured credit products, May 2017
                                                                        • Figure 41: Plans for credit use/repayment in the next two years, by unsecured credit product ownership, May 2017
                                                                    • Anticipated Effects of Brexit

                                                                      • Consumers are largely undecided on the impact of Brexit
                                                                        • Figure 42: Anticipated effects of Brexit on credit markets, May 2017
                                                                      • Three in ten say Brexit will make it harder to repay debt
                                                                        • Interest rates considered more likely to go up than down…
                                                                          • … but credit should be freely available still
                                                                          • Attitudes towards Debt

                                                                            • Cost is key when choosing a credit product...
                                                                              • … but brand is still a factor
                                                                                • Figure 43: Attitudes towards debt, May 2017
                                                                              • Half would be interested in borrowing guidance from their bank
                                                                                • Most consumers’ borrowing plans are unaffected by Brexit...
                                                                                  • Figure 44: Response to the statement “Uncertainty associated with Brexit is putting me off borrowing money”, by age, May 2017
                                                                                • … but current debt users are more wary
                                                                                  • Figure 45: Response to the statement “Uncertainty associated with Brexit is putting me off borrowing money”, by unsecured credit product ownership, May 2017
                                                                                • A third of Millennials would prefer to rent than buy with credit
                                                                                  • Figure 46: Response to the statement “I would prefer to rent/hire expensive items (eg car, furniture) rather than taking out credit to pay for them”, by generation, May 2017
                                                                              • Future Use of Credit Products

                                                                                • Credit cards are the favoured form of credit for almost all needs…
                                                                                  • Figure 47: Preferred form of credit for different purchases, May 2017
                                                                                • … but consumers are generally reticent to use credit
                                                                                  • Under-44s are more open to using credit for non-essentials
                                                                                    • Figure 48: Future use of credit products – “Any type of credit”, by age, May 2017
                                                                                • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                    • Abbreviations
                                                                                      • Consumer research methodology

                                                                                      Companies Covered

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                                                                                      Consumer Attitudes towards Debt - UK - July 2017

                                                                                      US $2,842.31 (Excl.Tax)