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Consumers' Attitudes Towards Debt - UK - July 2009

Since Mintel published the 2008 edition of this report, the credit market has changed beyond recognition. The days of cheap, easily available credit are well and truly over, at least for the foreseeable future. Falling base rates haven’t stopped credit card companies pushing up their APRs, while cheap mortgage deals are only available to those with a sizeable deposit.

It’s not just the supply of credit that has tailed off. Consumers are showing real signs of reassessing their financial priorities, cutting back on spending and looking to pay down debts. The savings ratio is still low by historical standards – but is far higher than was true at the peak of the debt boom.

This report examines the key economic trends that drive both demand and supply for credit, and the way in which consumers are reacting to the current slowdown. It tracks changes in attitude and confidence as the credit crunch turned into full-blown recession, and looks at which consumer groups have been hardest hit.

More general attitudes towards money and spending are examined, highlighting who is saving for a rainy day and how basic money management skills can affect the feeling of financial wellbeing. The consumer groups most likely to be cutting back on spending in favour of building up their savings are identified – crucial information not only for financial services providers, but also for any business reliant on discretionary consumer expenditure.

Key issues

  • The economy is in recession, with all the associated pressures this places on consumer spending and, in turn, borrowing.

  • Arrears are rising rapidly as people struggle to make ends meet – but most are still managing their finances fairly well.

  • The increase in consumer credit has perhaps been overplayed by the media, but outstanding debts are still at a record high.

  • There are signs that consumers are starting to recognise the advantages of the traditional adage “Never a borrower nor a lender be”.

  • Excessive debt is concentrated among a relatively small proportion of the adult population – for most, borrowing remains fairly manageable.

  • There is an extremely close link between an inability to budget and a tendency to get into financial difficulties.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Life After Debt
            • A problem that will blight a generation?
              • Apportioning the blame
                • Just a stage they’re going through?
                  • Boom Comes To An End
                    • Cutting back…
                      • …but it’s not time to panic
                        • Boring – but vital
                          • The importance of budgeting
                            • Education – financial as well as social rewards
                              • From borrowing to saving
                                • The intentions are good…
                                  • …but can they maintain momentum?
                                  • Market in Brief

                                    • New lending tails off – finally
                                      • Figure 1: Outstanding lending to individuals, 1993-2008
                                    • Despite the slowdown, most are still making ends meet…
                                      • Figure 2: Current financial position, April 2009
                                    • …but the burden of debt is starting to be felt
                                      • More debts, more problems
                                        • Most manage their spending pretty well
                                          • Figure 3: Money management skills, April 2009
                                        • Impulsive? Or virtuous?
                                          • Figure 4: Financial management target groups, April 2009
                                        • Cutting back on spending to cover the credit card bills
                                          • Housing equity withdrawal turns negative…
                                            • …while credit card lending remains steady
                                              • Figure 5: Gross and net credit card lending, 2004-09 (not seasonally adjusted)
                                          • Household Debt in Context

                                            • Key points
                                              • Have we reached the summit of the debt mountain?
                                                • Figure 6: Outstanding lending to individuals, 1993-2008
                                                • Figure 7: Growth in outstanding lending to individuals, 2003-08
                                              • Outstanding balances start to shrink
                                                • Borrowing races ahead of PDI
                                                  • Figure 8: Outstanding lending to individuals as a proportion of PDI, 1993-2008
                                              • Changing Economic Environment

                                                • Key points
                                                  • The recession starts to hit home…
                                                    • Figure 9: UK Gross Domestic Product, 2004-09
                                                  • …and unemployment takes a turn for the worse
                                                    • Figure 10: Number of unemployed people, Q1 1993-Q1 2009
                                                  • Mixed news on employment
                                                    • Low base rates limit the damage…
                                                      • Figure 11: Bank of England base rate and three-month LIBOR, 2007-09
                                                    • …but only help a few
                                                    • The Crunch Effect – Continued

                                                      • Key points
                                                        • The credit crunch continues to have a huge impact
                                                          • Low interest rates moderate the remortgage issue…
                                                            • …although rates on unsecured credit are increasing
                                                              • A spirit of prudence returns?
                                                                • Figure 12: Changing attitudes towards money management, January 2007-December 2008
                                                              • Time to clear those debts…
                                                                • Figure 13: Consumer financial activity, 2002-09
                                                              • …or forced to build them up again?
                                                                • Not all have been affected
                                                                  • Figure 14: Trends in the impact of the economic downturn on consumers, December 2008-June 2009
                                                                • It’s not what you know, it’s who you know
                                                                  • A degree of optimism?
                                                                    • Figure 15: Trends in consumer sentiment for the coming year, December 2008-June 2009
                                                                  • Availability of finance
                                                                  • The Over-Extended Consumer

                                                                    • Key points
                                                                      • Write-offs increase – but don’t soar
                                                                        • Figure 16: Quarterly write-offs of lending to individuals, 2004-09
                                                                      • Repossessions – not as bad as initially feared?
                                                                        • Bankruptcies hit new levels
                                                                          • Figure 17: Individual insolvencies in England and Wales, 2004-09
                                                                        • Changing attitudes towards bankruptcy?
                                                                          • Generation debt – advice charities feel the strain
                                                                          • The Mortgage Market

                                                                            • Key points
                                                                              • The mortgage market shuts down…
                                                                                • Figure 18: Gross and net mortgage lending, 2004-09 (not seasonally adjusted)
                                                                              • …and even shifts into reverse gear
                                                                                • Little faith in future price rises
                                                                                  • Figure 19: Expected growth in house prices, 2007-09
                                                                                • Housing equity withdrawal turns negative
                                                                                  • Figure 20: Housing equity withdrawal (not seasonally adjusted), 1999-2009
                                                                                • The end of the property piggy bank
                                                                                • Consumer Credit

                                                                                  • Key points
                                                                                    • Credit cards still mainly used as revolving credit…
                                                                                      • Figure 21: Gross and net credit card lending, 2004-09 (not seasonally adjusted)
                                                                                    • …but personal loan balances continue to grow
                                                                                      • Figure 22: Gross and net consumer credit (excluding credit card lending), 2004-09 (not seasonally adjusted)
                                                                                    • Loans hit by cheap mortgage finance…
                                                                                      • …and then the slowdown
                                                                                      • The Consumer – Financial Situation

                                                                                        • Key points
                                                                                          • Most are still getting by…
                                                                                            • Figure 23: Current financial position, April 2009
                                                                                          • …but how much slack is there in household budgets?
                                                                                            • The less affluent are far less confident
                                                                                              • Figure 24: Current financial position, by gender, age and socio-economic group, April 2009
                                                                                            • An easy retirement?
                                                                                              • Figure 25: Current financial position, by lifestage and gross household income, April 2009
                                                                                            • Flying south for the winter
                                                                                            • The Consumer – Credit Ownership

                                                                                              • Key points
                                                                                                • Most have some kind of outstanding credit…
                                                                                                  • Figure 26: Products on which respondents currently owe money, April 2009
                                                                                                • …with a quarter holding multiple types
                                                                                                  • Figure 27: Repertoire of types of credit currently outstanding, April 2009
                                                                                                • Credit – only a problem if you can’t control it?
                                                                                                  • Borrowers feel the pinch
                                                                                                    • Figure 28: Current financial position, by types of credit outstanding, April 2009
                                                                                                  • A generational shift
                                                                                                    • Figure 29: Outstanding credit, by gender, age and socio-economic group, April 2009
                                                                                                  • Credit’s useful – as long as you don’t need it
                                                                                                  • The Consumer – Level of Unsecured Debt

                                                                                                    • Key points
                                                                                                      • One in ten owe have more than £10,000 in unsecured debt
                                                                                                        • Figure 30: Money owed on unsecured debts, April 2009
                                                                                                      • Struggling at the margins
                                                                                                          • Figure 31: Current financial position, by money owed on unsecured debts, April 2009
                                                                                                        • Borrowing their way into trouble
                                                                                                          • Figure 32: Money owed on unsecured debts, by demographics, April 2009
                                                                                                        • More strain on the family budget
                                                                                                          • Figure 33: Money owed on unsecured debts, by demographics, April 2009
                                                                                                      • The Consumer – Level of Secured Debt

                                                                                                        • Key points
                                                                                                          • High mortgages are the exception, not the norm
                                                                                                            • Figure 34: Money owed on secured/mortgage-related debts, April 2009
                                                                                                            • Figure 35: Current financial position, by money owed on secured/mortgage-related debts, April 2009
                                                                                                          • The cost of climbing the ladder
                                                                                                              • Figure 36: Money owed on secured/mortgage-related debts, by demographics, April 2009
                                                                                                          • The Consumer – Borrowing, Saving and Managing Money

                                                                                                            • Key points
                                                                                                              • Paragons of financial virtue?
                                                                                                                • Figure 37: Money management skills, April 2009
                                                                                                              • Reaping the rewards of responsible budgeting…
                                                                                                                  • Figure 38: Current financial position, by positive attitudes towards money management skills, April 2009
                                                                                                                • …and the financial implications of a lack of organisation
                                                                                                                    • Figure 39: Current financial situation, by negative attitudes towards money management skills, April 2009
                                                                                                                  • The ‘denial’ approach to managing debt
                                                                                                                    • Mortgage holders – managing their responsibilities?
                                                                                                                        • Figure 40: Money management skills, by money currently owed, April 2009
                                                                                                                      • The polarisation of consumer credit
                                                                                                                        • Experience, or a generational shift?
                                                                                                                          • The student loan generation
                                                                                                                            • Affluent enough to take a few risks?
                                                                                                                            • The Consumer – Attitudes and Expectations

                                                                                                                              • Key points
                                                                                                                                • Time to cut back borrowing?
                                                                                                                                  • Figure 41: Impact of the slowdown, April 2009
                                                                                                                                • Credit rationing – only a problem for a minority
                                                                                                                                  • The view from the ivory tower
                                                                                                                                      • Figure 42: Impact of the slowdown, by current financial position, April 2009
                                                                                                                                    • The stretched are concentrating on clearing debts
                                                                                                                                      • A third of mortgage holders are feeling the benefit
                                                                                                                                        • Figure 43: Impact of the slowdown, by money currently owed, April 2009
                                                                                                                                      • Reality hits for the over-extended?
                                                                                                                                        • Figure 44: Impact of the slowdown, by money owed on unsecured debts, April 2009
                                                                                                                                    • The Consumer – Segmenting the Population

                                                                                                                                      • Key points
                                                                                                                                        • Most manage their finances with only the occasional glitch
                                                                                                                                          • Figure 45: Financial management target groups, April 2009
                                                                                                                                          • Figure 46: Attitudes towards financial management, by financial management target groups, April 2009
                                                                                                                                        • Young and carefree
                                                                                                                                          • Figure 47: Financial management target groups, by gender, age, socio-economic group and lifestage, April 2009
                                                                                                                                        • Is virtue its own reward?
                                                                                                                                            • Figure 48: Current financial position, by financial management target groups, April 2009
                                                                                                                                          • Banks reducing options for the Impulsive?
                                                                                                                                              • Figure 49: Impact of the slowdown, by financial management target groups, April 2009
                                                                                                                                            • Anything for an easy life
                                                                                                                                              • Figure 50: The slowdown segmentation, April 2009
                                                                                                                                              • Figure 51: Attitudes towards the slowdown, by the slowdown segmentation, April 2009
                                                                                                                                            • Dreaming of a return to traditional banking values
                                                                                                                                              • Figure 52: The slowdown segmentation, by gender, age, socio-economic group and lifestage, April 2009
                                                                                                                                          • Appendix – The Consumer – Financial Situation

                                                                                                                                              • Figure 53: Current financial position, by demographics, April 2009
                                                                                                                                          • Appendix – The Consumer – Credit Ownership

                                                                                                                                              • Figure 54: Repertoire of money currently owed, by money currently owed, April 2009
                                                                                                                                              • Figure 55: Most popular money currently owed, by demographics, April 2009
                                                                                                                                              • Figure 56: Next most popular money currently owed, by demographics, April 2009 (continued)
                                                                                                                                          • Appendix – The Consumer – Level of Debt

                                                                                                                                              • Figure 57: Money owed on unsecured debts, by demographics, April 2009
                                                                                                                                              • Figure 58: Most popular money owed on secured/mortgage-related debts, by demographics, April 2009
                                                                                                                                              • Figure 59: Next most popular money owed on secured/mortgage-related debts, by demographics, April 2009 (continued)
                                                                                                                                          • Appendix – The Consumer – Borrowing, Saving and Managing Money

                                                                                                                                              • Figure 60: Most popular money management skills, by demographics, April 2009
                                                                                                                                              • Figure 61: Next most popular money management skills, by demographics, April 2009 (continued)
                                                                                                                                              • Figure 62: Most popular money management skills, by money currently owed, April 2009
                                                                                                                                              • Figure 63: Next most popular money management skills, by money currently owed, April 2009 (continued)
                                                                                                                                          • Appendix – The Consumer – Attitudes and Expectations

                                                                                                                                              • Figure 64: Most popular impact of the slowdown, by demographics, April 2009
                                                                                                                                              • Figure 65: Next most popular impact of the slowdown, by demographics, April 2009 (continued)
                                                                                                                                          • Appendix – The Consumer – Segmenting the Market

                                                                                                                                              • Figure 66: Money management target groups, by demographics, April 2009
                                                                                                                                              • Figure 67: Slowdown segments, by demographics, April 2009

                                                                                                                                          Companies Covered

                                                                                                                                          • Asda Group Ltd
                                                                                                                                          • Bank of England
                                                                                                                                          • British Market Research Bureau (BMRB)
                                                                                                                                          • Citizens Advice Bureau
                                                                                                                                          • Co-operative Group
                                                                                                                                          • Competition Commission
                                                                                                                                          • Council of Mortgage Lenders
                                                                                                                                          • Financial Services Authority (The)
                                                                                                                                          • Gfk NOP
                                                                                                                                          • John Gilbert Financial Research
                                                                                                                                          • Northern Rock plc
                                                                                                                                          • Office for National Statistics

                                                                                                                                          Consumers' Attitudes Towards Debt - UK - July 2009

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