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Consumers and Credit Risk - UK - February 2017

“The changing demographic profile of the UK highlights the growing need for more non-mainstream lending products. However, despite positive signs of engagement, there is a disconnect between how confident people feel about being able to access credit, and the likelihood that they are trying to improve their credit score.”

– Jessica Galletley, Financial Services Analyst

This report is looking at the following areas:

  • Different factors affect people’s level of access to credit
  • Changing employment landscape creates opportunities
  • Life events spark engagement with credit scores

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Table of contents

  1. Overview

    • What you need to know
      • Definitions
      • Executive Summary

          • The market
            • Unsecured lending continues to grow
              • Figure 1: Gross unsecured lending, 2012-16
            • Insolvencies rise for the first time…
              • Figure 2: Individual insolvencies in England and Wales, by type, 2011-16 (not seasonally adjusted)
            • Brexit will put a dampener on positive employment conditions
              • The Open Banking Standard will help to address financial exclusion
                • Use of alternative data will reduce financial exclusion
                  • The consumer
                    • Over half of the population could face difficulty accessing the credit they want
                      • Figure 3: Factors affecting access to credit, October 2016
                    • Two thirds of UK adults owe money on a loan or credit product
                      • Figure 4: Loan and credit product ownership, October 2016
                    • Majority are confident about accessing credit
                      • Figure 5: Confidence in being accepted for credit or a loan, October 2016
                    • Most credit users have their borrowing under control
                      • Figure 6: Amount owed on all loan and credit products, October 2016
                    • Credit use concerns mean people try to repay as quickly as possible
                      • Figure 7: Attitudes towards borrowing, October 2016
                    • Majority never check their credit score
                      • Figure 8: Credit score checking behaviour, October 2016
                    • Over a third are currently trying to improve their score
                      • Figure 9: Attitudes towards credit scores, October 2016
                    • What we think
                    • Issues and Insights

                      • Different factors affect people’s level of access to credit
                        • The facts
                          • The implications
                            • Changing employment landscape creates opportunities
                              • The facts
                                • The implications
                                  • Life events spark engagement with credit scores
                                    • The facts
                                      • The implications
                                      • The Market – What You Need to Know

                                        • Unsecured lending continues to grow
                                          • Insolvencies remain low
                                            • FCA reviews entire high-cost credit market
                                              • The Open Banking Standard will help to address financial exclusion
                                              • Market Environment

                                                • Unsecured lending continues to grow
                                                  • Figure 10: Gross unsecured lending, 2012-16
                                                • Availability of credit has improved…
                                                  • …but regulation has meant tighter affordability checks
                                                    • HCSTC cap has unmasked need for established non-mainstream lenders
                                                      • Changing demographics highlight need for alternative lending products
                                                        • Ageing population
                                                          • Self-employed
                                                            • Rising rental population
                                                              • Insolvencies rise slightly in 2016…
                                                                • Figure 11: Individual insolvencies in England and Wales, by type, 2011-16 (not seasonally adjusted)
                                                              • …whilst more people are seeking debt advice
                                                                • Unemployment continues to fall…
                                                                  • Figure 12: Total UK unemployment rate among people aged 16+, quarterly, January 2010-September 2016
                                                                • …but Brexit could make the economic picture gloomier
                                                                • Regulatory Context

                                                                  • FCA reviews entire high-cost credit market
                                                                    • The Open Banking Standard will help to address financial exclusion
                                                                      • FCA to review creditworthiness
                                                                      • Market Developments

                                                                        • Use of alternative data could reduce financial exclusion
                                                                          • Brokers play an important role in the non-mainstream market
                                                                            • Few large lenders seek lion’s share of the subprime unsecured lending market
                                                                              • Innovation in the non-mainstream lending markets
                                                                                • Guarantor loans
                                                                                  • Credit-builder cards
                                                                                    • Free credit score checks
                                                                                    • The Consumer – What You Need to Know

                                                                                      • Over half of the population could face difficulty accessing credit
                                                                                        • The majority of people are confident they could access credit
                                                                                          • Discomfort with credit means most want to repay quickly
                                                                                            • Two in five want their provider to take a more active role
                                                                                              • Important life events spark the need to improve scores
                                                                                              • Credit Risk Consumer Profile

                                                                                                • Lenders and credit risk
                                                                                                  • Over half of the population could face difficulty accessing credit
                                                                                                    • Employment or circumstantial factors
                                                                                                      • Money management issues
                                                                                                        • Experienced financial difficulties
                                                                                                            • Figure 13: Factors affecting access to credit, October 2016
                                                                                                          • People with low-risk issues more likely to be offered a higher rate
                                                                                                            • Payday loans and credit
                                                                                                              • Education around some lifestyle factors will improve credit profile
                                                                                                                • Lower-income borrowers have less access to credit
                                                                                                                  • Figure 14: Household income, October 2016
                                                                                                              • Loan and Credit Product Ownership

                                                                                                                • Two thirds of UK adults owe money on a loan or credit product
                                                                                                                  • Figure 15: Loan and credit product ownership, October 2016
                                                                                                                • One in 10 have a personal loan
                                                                                                                  • Only 8% of people have four or more different types of products
                                                                                                                    • Figure 16: Repertoire of loan and credit product ownership, October 2016
                                                                                                                  • Type of products owned depends on the type of borrower
                                                                                                                    • Figure 17: Loan and credit product ownership, by factors affecting access to credit, October 2016
                                                                                                                • Confidence in Accessing Credit

                                                                                                                  • Majority are confident about accessing credit
                                                                                                                      • Figure 18: Confidence in being accepted for credit or a loan, October 2016
                                                                                                                    • Half of people with financial difficulties remain confident
                                                                                                                      • Figure 19: Confidence in being accepted for credit or a loan, by factors affecting access to credit, October 2016
                                                                                                                    • Confidence rises as people get older
                                                                                                                      • Figure 20: Confidence in being accepted for credit or a loan, by age, October 2016
                                                                                                                    • Regional differences highlight need for financial support
                                                                                                                      • Employment status affects confidence
                                                                                                                        • Figure 21: Confidence in being accepted for credit or a loan, by employment status, October 2016
                                                                                                                      • Lack of credit usage limits future access
                                                                                                                          • Figure 22: Confidence in being accepted for credit or a loan, by loan and credit product ownership, October 2016
                                                                                                                      • Amount Owed on Loan and Credit Products

                                                                                                                        • Most credit users have their borrowing under control
                                                                                                                          • Figure 23: Amount owed on all loan and credit products, October 2016
                                                                                                                        • Debt-to-income ratio is a key indicator
                                                                                                                          • Figure 24: Amount owed on all loan and credit products, by household income, October 2016
                                                                                                                      • Attitudes towards Borrowing

                                                                                                                        • Credit use concerns mean people try to repay as quickly as possible
                                                                                                                            • Figure 25: Attitudes towards borrowing, October 2016
                                                                                                                          • Two in five want their provider to take a more active role
                                                                                                                            • Importance placed on expert advice as online information leads to confusion
                                                                                                                              • Interest in protection products but significant barriers exist
                                                                                                                                • Credit use concerns mean people prefer familiar providers
                                                                                                                                  • Non-mainstream providers need to do more to become ‘first-choice’ lenders
                                                                                                                                      • Figure 26: Attitudes towards borrowing, by factors affecting access to credit, October 2016
                                                                                                                                  • Credit Score Checking

                                                                                                                                    • Majority of people never check their credit score
                                                                                                                                        • Figure 27: Credit score checking behaviour, October 2016
                                                                                                                                      • Two in five credit users check their score at least once a year
                                                                                                                                        • : Figure 28: Credit score checking behaviour, October 2016
                                                                                                                                      • Engagement falls when people owe less
                                                                                                                                        • People with existing issues are more engaged
                                                                                                                                          • Figure 29: Credit check scoring behaviour, by factors affecting access to credit, October 2016
                                                                                                                                      • Attitudes towards Credit Scores

                                                                                                                                        • Over a third are currently trying to improve their score
                                                                                                                                          • Figure 30: Attitudes towards credit scores, October 2016
                                                                                                                                        • Important life events spark the need to improve scores
                                                                                                                                          • Figure 31: Agreement with the statement ‘I'm currently trying to improve my credit score’, by age, October 2016
                                                                                                                                        • Lack of connection between acceptance and credit score
                                                                                                                                          • Figure 32: Agreement with the statement ‘I'm currently trying to improve my credit score’, by confidence in being able to access credit, October 2016
                                                                                                                                        • Paying a fee could be off-putting to those in most need of understanding their credit profile
                                                                                                                                          • Figure 33: Agreement with the statement ‘I'm willing to pay a monthly fee for detailed information about my credit profile’, by financial situation, October 2016
                                                                                                                                        • Millennials are more willing to pay for detailed information
                                                                                                                                          • Figure 34: Agreement with the statement ‘I'm willing to pay a monthly fee for detailed information about my credit profile’, by generation, October 2016
                                                                                                                                      • Appendix – Factors Affecting Access to Credit

                                                                                                                                        • Employment or circumstance factors
                                                                                                                                          • Figure 35: Employment or circumstance factors affecting access to credit, October 2016
                                                                                                                                        • Money management factors
                                                                                                                                          • Figure 36: Money management factors affecting access to credit, October 2016
                                                                                                                                        • Financial difficulty factors affecting access to credit
                                                                                                                                          • Figure 37: Financial difficulty factors affecting access to credit, October 2016
                                                                                                                                      • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                          • Abbreviations
                                                                                                                                            • Consumer research methodology

                                                                                                                                            Companies Covered

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                                                                                                                                            Consumers and Credit Risk - UK - February 2017

                                                                                                                                            US $2,570.96 (Excl.Tax)