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Loans - UK - January 2015

“Customers are seeking a greater level of transparency with loan products – as is reflected in the surge in usage of price comparison websites when applying for loans. However, it would be a mistake to overstate a trend towards digital as Mintel data suggests that face to face is undergoing somewhat of a revival – especially when looking at loans taken out more recently.”
– Sean Song, Research Analyst – Financial Services

This report discusses the following key topics:

  • Regulations in the payday loans industry
  • How are people applying for loans, and the future 
  • The continued rise of peer-to-peer lending

 

The personal loans market continues to be a competitive one, with rates dropping as low as 3.9%, making loans more affordable to more people. If the base rate continues to hold at 0.5%, which is looking likely for the best part of 2015, the pool of potential borrowers will continue to grow.

The payday loans market has undergone a transition in 2014, as new regulations outline the new framework within which lenders must now operate. Remaining lenders are eager to snap up customers who have been left without a payday lender, while at the same time building a more positive image in the wake of the new regulations.


This report examines the personal loans industry, including how people are applying for loans, and how likely they are to apply for a new loan within the next 12 months. The report also includes discussions on the existing market landscape, the brand strength of key players in the market, and how that may change in the coming year. Market drivers are analysed in order to present a view on how the industry is likely to perform beyond the next year. In addition, the report includes in-depth analysis on payday loan usage and consideration, as well as peoples’ attitudes towards the place of payday loans and lenders in the market.


This report examines the UK loans market, and includes products such as unsecured personal loans and high-cost short-term credit loans including payday loans. It does not cover analysis of secured loans, which are typically secured against the borrower’s property. Personal loans are, in the main, available to borrow for between £1,000 and £25,000 (subject to credit checks) over fixed repayment terms of one to 10 years. High-cost short-term credit loans and payday loans are, for the purpose of this report, defined as unsecured loans of value under £1,000 with a repayment term of less than one year.

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Table of contents

  1. Introduction

      • Report scope
        • Abbreviations
        • Executive Summary

            • The market
              • Personal loans market grew by 13% in 2014
                • Figure 1: Forecast of personal loans industry revenue – Fan chart, 2009-19
              • Gross unsecured lending grows by 3%
                • Figure 2: Gross unsecured lending, by product type, 2011-14
              • Market factors
                • Despite a retrenchment in 2014, financial consumer confidence is still strong
                  • Figure 3: Financial confidence, January 2009-September 2014
                • Below-inflation level rises of weekly income are creating an income squeeze
                  • Figure 4: Single-month changes in weekly earnings, and CPI, September 2010-September 2014
                • Regulators clamp down on the payday loan sector
                  • Brands and trust
                    • Figure 5: Attitudes towards and usage of selected brands, December 2014
                  • Companies, products and innovations
                    • Eight out of the top 10 spenders on adverts were high-cost short-term credit lenders
                      • Figure 6: Top 10 lenders’ spend, 2014 (est)
                    • High street banks continue to dominate market share, but supermarket banks are on the rise
                      • Figure 7: Top seven providers in terms of value of outstanding unsecured consumer lending (UK), 2013
                    • The consumer
                      • Roughly one in five people have some form of unsecured structured loan
                        • Figure 8: Types of loans and credit currently owned, September 2014
                      • Over one in 10 people currently owe money or have used a payday loan
                        • Figure 9: Payday loan usage and consideration, September 2014
                      • Payday loan usage spans income groups
                        • Figure 10: Payday loan ownership, by gross household income, September 2014
                      • Payday lenders are more appreciated among younger people
                        • Figure 11: Agreement with the statement “payday lenders offer a valuable service”, by age, September 2014
                      • Paying for a new car and debt consolidation were the most popular reasons for credit use
                        • Figure 12: Reasons for loan ownership, September 2014
                      • Over one in 10 people are considering taking a loan out in the next year
                        • Figure 13: Likelihood of taking out a loan product in the next 12 months, September 2014
                      • Loan holders are much more likely to consider taking out another loan in the next 12 months
                        • 40% of all loans are applied for digitally
                          • Figure 14: Method of loan application, September 2014
                        • Most people would prefer to go to a high street bank for a loan
                          • Figure 15: Attitudes towards credit, by likelihood to withdraw a loan within the next 12 months, September 2014
                        • What we think
                        • Issues and Insights

                            • Regulations in the payday loans industry: The impacts on the lenders and borrowers
                              • The issues
                                • The implications
                                  • How are people applying for loans, and the future
                                    • The issues
                                      • The implications
                                        • The continued rise of peer-to-peer lending
                                          • The issues
                                            • The implications
                                            • Trend Application

                                              • Middle class shows demand for high-cost short-term credit
                                                • Streamlining credit check procedure leads to more loan applications
                                                  • The bar has been raised for lenders’ responsibility
                                                  • Market Drivers

                                                    • Key points
                                                      • Consumer financial confidence has stabilised following a retrenchment in 2014
                                                        • Figure 16: Financial confidence, January 2009-September 2014
                                                      • Little change in the proportion who plan to take out a loan product within the next 12 months
                                                        • Figure 17: Comparison of likelihood of taking a loan product in the next 12 months, 2013 and 2014
                                                      • Weekly income earnings are increasing but at a below-inflation level
                                                        • Figure 18: Single-month changes in weekly earnings, and CPI, September 2010-September 2014
                                                      • Employment levels
                                                        • Figure 19: Employment rate (aged 16-64), seasonally adjusted, November 2011-July 2014
                                                      • Employment continues to rise…
                                                        • Figure 20: Credit ownership, by working situation, September 2014
                                                      • …and borrowing rates continue to decline
                                                        • Figure 21: £5,000 and £10,000 loan interest rates, three-month LIBOR, and base rate, August 2009-September 2014
                                                      • Major hike in write-offs in unsecured lending in mid-2014
                                                        • Figure 22: Quarterly write-offs of lending to individuals, by lending type, September 2011-September 2014
                                                      • Regulators focus on the payday loan sector
                                                      • Market SWOT Analysis

                                                          • Figure 23: Personal loans 2015 – Market SWOT analysis
                                                      • Who’s Innovating?

                                                          • Innovation amongst traditional lenders is limited, but necessary
                                                            • Halifax and Lloyds offer flexible loans
                                                              • Sainsbury’s Bank increases maximum loan amount to £35,000
                                                              • Market Size and Forecast

                                                                • Key points
                                                                  • Credit is growing rapidly…
                                                                    • Figure 24: Gross credit card lending and other consumer credit, 2010-14
                                                                  • …and the value of unsecured personal loans is expected to have hit £26 billion
                                                                    • Figure 25: Other consumer credit, 2010-14
                                                                  • Market forecast
                                                                    • Figure 26: Forecast of the value of unsecured personal loans, by gross advances, fan chart, 2009-19
                                                                    • Figure 27: Forecast of the value of unsecured personal loans, by gross advances, at current and constant prices, 2009-19
                                                                  • Forecast methodology
                                                                    • Fan chart explanation
                                                                    • Market Share

                                                                      • Key points
                                                                        • Lloyds is still the market leader
                                                                          • Figure 28: Value of outstanding unsecured consumer lending (UK), by selected providers, 2012 and 2013
                                                                        • Growing competition and presence from flexible supermarket banks
                                                                        • Companies and Products

                                                                          • Barclays
                                                                            • Company background
                                                                              • Relevant brands and subsidiaries
                                                                                • Loan product range
                                                                                  • Recent financial performance
                                                                                    • Figure 29: Barclays financial performance, Q1-Q3 2013 and 2014
                                                                                  • Recent activity
                                                                                    • Grupo Santander
                                                                                      • Company background
                                                                                        • Relevant brands and subsidiaries
                                                                                          • Loan product range
                                                                                            • Recent financial performance
                                                                                              • Figure 30: Santander UK financial performance, Q1-Q3 2013 and 2014
                                                                                            • Recent activity
                                                                                              • HSBC
                                                                                                • Company background
                                                                                                  • Relevant brands and subsidiaries
                                                                                                    • Loan product range
                                                                                                      • Recent financial performance
                                                                                                        • Figure 31: Interim for HSBC Bank financial performance, Q1-Q2 2013 and 2014
                                                                                                      • Recent activity
                                                                                                        • Lloyds Bank
                                                                                                          • Company background
                                                                                                            • Relevant brands and subsidiaries
                                                                                                              • Loan product range
                                                                                                                • Recent financial performance
                                                                                                                  • Figure 32: Lloyds Interim financial performance, Q1-Q3 2013 and 2014
                                                                                                                • Recent activity
                                                                                                                  • TSB
                                                                                                                    • Company background
                                                                                                                      • Loan product range
                                                                                                                        • Recent financial performance
                                                                                                                          • Figure 33: TSB financial performance, Q2 2013 and Q3 2014
                                                                                                                        • Recent activity
                                                                                                                          • Nationwide
                                                                                                                            • Company background
                                                                                                                              • Relevant brands and subsidiaries
                                                                                                                                • Loan product range
                                                                                                                                  • Recent financial performance
                                                                                                                                    • Figure 34: Nationwide financial performance, Q1-Q2 2013 and 2014
                                                                                                                                  • Recent activity
                                                                                                                                    • RBS Group
                                                                                                                                      • Company background
                                                                                                                                        • Relevant brands and subsidiaries
                                                                                                                                          • Loan product range
                                                                                                                                            • Recent financial performance
                                                                                                                                              • Figure 35: RBS interim financial results, Q3 2013 and Q3 2014
                                                                                                                                            • Recent activity
                                                                                                                                              • Wonga
                                                                                                                                                • Company background
                                                                                                                                                  • Loan product range
                                                                                                                                                    • Recent financial performance
                                                                                                                                                      • Figure 36: Wonga financial performance, FY 2012 and FY 2013
                                                                                                                                                    • Recent activity
                                                                                                                                                      • Zopa
                                                                                                                                                        • Company background
                                                                                                                                                          • Loan product range
                                                                                                                                                            • Recent activity
                                                                                                                                                              • Sainsbury’s Bank
                                                                                                                                                                • Company background
                                                                                                                                                                  • Loan product range
                                                                                                                                                                    • Recent financial performance
                                                                                                                                                                      • Figure 37: Sainsbury’s Bank annual report, FY 2013 and FY 2014
                                                                                                                                                                    • Recent activity
                                                                                                                                                                      • Tesco Bank
                                                                                                                                                                        • Company background
                                                                                                                                                                          • Loan product range
                                                                                                                                                                            • Recent financial performance
                                                                                                                                                                              • Figure 38: Tesco Bank, FY 2013 and FY 2014
                                                                                                                                                                            • Recent activity
                                                                                                                                                                            • Brand Research

                                                                                                                                                                              • Brand map
                                                                                                                                                                                • High street brands enjoy considerably higher levels of trust
                                                                                                                                                                                  • Figure 39: Attitudes towards and usage of selected financial services brands, December 2014
                                                                                                                                                                                • Correspondence analysis
                                                                                                                                                                                  • Brand attitudes
                                                                                                                                                                                    • Figure 40: Attitudes, by brand, December 2014
                                                                                                                                                                                  • Brand personality
                                                                                                                                                                                    • Figure 41: Brand personality – Macro image, December 2014
                                                                                                                                                                                    • Figure 42: Brand personality – Micro image, December 2014
                                                                                                                                                                                  • Brand experience
                                                                                                                                                                                    • Figure 43: Selected brand usage, December 2014
                                                                                                                                                                                    • Figure 44: Satisfaction with selected brands, December 2014
                                                                                                                                                                                    • Figure 45: Consideration of selected brands, December 2014
                                                                                                                                                                                    • Figure 46: Consumer perceptions of selected brand performance, December 2014
                                                                                                                                                                                  • Brand recommendation
                                                                                                                                                                                    • Figure 47: Recommendation of selected brands, December 2014
                                                                                                                                                                                • Brand Communication and Promotion

                                                                                                                                                                                  • Key points
                                                                                                                                                                                    • Overall adspend for structured loans falls 9.2% year on year
                                                                                                                                                                                      • Figure 48: Advertising expenditure on structured loan products, 2010-14
                                                                                                                                                                                    • Payday lenders ramp up adspend operations, while Wonga scales back
                                                                                                                                                                                      • Figure 49: Top 20 spenders on advertising in the personal loans market, 2011-14
                                                                                                                                                                                    • Payday lenders could face pre-watershed advert ban
                                                                                                                                                                                      • Television adverts continue to dominate the adspend space
                                                                                                                                                                                        • Figure 50: Advertising expenditure on unsecured loans (inc. payday loans), by media type, 2011-14
                                                                                                                                                                                      • Lenders continue prudent spending on internet advertising
                                                                                                                                                                                      • Loan and Credit Product Ownership

                                                                                                                                                                                        • Key points
                                                                                                                                                                                          • 70% owe money on at least one kind of credit
                                                                                                                                                                                            • Figure 51: Loan and credit product ownership, September 2014
                                                                                                                                                                                          • Smart use of credit cards continues to dominate the credit market
                                                                                                                                                                                            • Personal loans are the fifth most popular form of credit
                                                                                                                                                                                              • 25-34-year-olds have most appetite for borrowing
                                                                                                                                                                                                • Figure 52: Credit product ownership, by age, September 2014
                                                                                                                                                                                              • People new to credit are hesitant about other forms of credit than credit cards
                                                                                                                                                                                                • Figure 53: Number of different types of credit owed, by types of credit, September 2014
                                                                                                                                                                                              • Personal loans were owned by only 4% of people with one type of credit…
                                                                                                                                                                                                • …but ownership increases to 45% for people who have at least four types of credit
                                                                                                                                                                                                • Reasons for Loan Ownership

                                                                                                                                                                                                  • Key points
                                                                                                                                                                                                    • A quarter of personal loan owners had borrowed to buy a new car
                                                                                                                                                                                                      • Figure 54: Reasons for loan ownership, September 2014
                                                                                                                                                                                                    • Large one-off payments were more common in larger households
                                                                                                                                                                                                      • Consolidating existing debt is the second most common reason for people taking out a loan product
                                                                                                                                                                                                        • Figure 55: Reasons for taking out most recent loan product, by credit ownership and payday loan ownership, September 2014
                                                                                                                                                                                                      • Payday and personal loan ownership was high for debt consolidators
                                                                                                                                                                                                      • Methods of Loan Application

                                                                                                                                                                                                        • Key points
                                                                                                                                                                                                          • Digital leads the way
                                                                                                                                                                                                            • Figure 56: Method of loan application, September 2014
                                                                                                                                                                                                          • Face-to-face sales still account for roughly a third of sales
                                                                                                                                                                                                            • Digital methods are more commonly used by younger people
                                                                                                                                                                                                              • Figure 57: Method of application, by age, September 2014
                                                                                                                                                                                                            • Rise in the popularity of price comparison websites
                                                                                                                                                                                                              • Figure 58: Method of loan application, by length of time borrowers have held their loan for, September 2014
                                                                                                                                                                                                            • Face-to-face applications still an important channel
                                                                                                                                                                                                            • Likelihood of Taking Out a Loan in the Next 12 Months

                                                                                                                                                                                                              • Key points
                                                                                                                                                                                                                • The majority of people are not considering a loan in the next year
                                                                                                                                                                                                                  • Figure 59: Likelihood of taking out a loan product in the next 12 months, September 2014
                                                                                                                                                                                                                • 14% of respondents are considering a loan product in the next year
                                                                                                                                                                                                                  • Loan usage is habitual
                                                                                                                                                                                                                    • Figure 60: Likelihood of taking out a loan product in the next 12 months, by types of loans and credit currently owned, September 2014
                                                                                                                                                                                                                  • Unsecured structured loan users are much more likely to consider a loan
                                                                                                                                                                                                                    • Over one in five personal loan holders are considering taking out a loan in the next year
                                                                                                                                                                                                                      • 53% of people who have used or currently owe money on a payday loan are likely to take out a loan in the next year
                                                                                                                                                                                                                        • People who took a loan out one or two years ago are the most likely to take another out in the next year
                                                                                                                                                                                                                          • Figure 61: Likelihood of taking out a loan product in the next 12 months, by period of time that loan owners have held their most recent loan for, September 2014
                                                                                                                                                                                                                      • Payday Loans – Usage and Consideration

                                                                                                                                                                                                                        • Key points
                                                                                                                                                                                                                          • There is still a negative association surrounding high-cost short-term credit.
                                                                                                                                                                                                                            • Figure 62: Payday loan usage and consideration, September 2014
                                                                                                                                                                                                                          • However, there is still an appreciable market that is open to the idea of using payday loans…
                                                                                                                                                                                                                            • …particularly amongst Millennials
                                                                                                                                                                                                                              • Payday loans are not just for the below-average earner
                                                                                                                                                                                                                                • Figure 63: People who have used/currently owe money on a payday loan, by gross annual household income, September 2014
                                                                                                                                                                                                                            • Attitudes towards Payday Loans

                                                                                                                                                                                                                              • Key points
                                                                                                                                                                                                                                • Perceptions of payday loans as a useful product suggest there is room for growth…
                                                                                                                                                                                                                                  • Figure 64: Attitudes towards payday loans and lenders, September 2014
                                                                                                                                                                                                                                • …even among the higher-income households
                                                                                                                                                                                                                                  • Figure 65: Agreement with the statement “A payday loan can be a useful product as long as it is used responsibly”, by gross annual household income, September 2014
                                                                                                                                                                                                                                • However, perceptions of payday loan lenders are less positive
                                                                                                                                                                                                                                  • The younger generations are more positive
                                                                                                                                                                                                                                    • Figure 66: Agreement with the statement “Payday lenders offer a valuable service”, by age, September 2014
                                                                                                                                                                                                                                  • Overdrafts are still viewed as a better option than using a payday loan
                                                                                                                                                                                                                                  • Attitudes towards Credit

                                                                                                                                                                                                                                    • Key points
                                                                                                                                                                                                                                      • Most people would rather deal with a high street bank
                                                                                                                                                                                                                                        • Figure 67: Attitudes towards credit, September 2014
                                                                                                                                                                                                                                        • Figure 68: Attitudes towards credit, September 2014
                                                                                                                                                                                                                                      • Price is the most important factor
                                                                                                                                                                                                                                        • Nearly a quarter of respondents were worried whether they would pass a credit check
                                                                                                                                                                                                                                          • Lenders are not solely responsible for credit victims
                                                                                                                                                                                                                                          • Appendix

                                                                                                                                                                                                                                              • Figure 69: Forecast data for loans, by confidence intervals 95%, 90%, 70%, 50%

                                                                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                                                                          • Alliance & Leicester
                                                                                                                                                                                                                                          • Barclays Bank plc
                                                                                                                                                                                                                                          • Bradford & Bingley plc
                                                                                                                                                                                                                                          • Cheshire Building Society
                                                                                                                                                                                                                                          • First Direct
                                                                                                                                                                                                                                          • HSBC Private Bank (UK) Limited
                                                                                                                                                                                                                                          • J. Sainsbury
                                                                                                                                                                                                                                          • Lloyds Banking Group
                                                                                                                                                                                                                                          • Nationwide Building Society
                                                                                                                                                                                                                                          • Nectar
                                                                                                                                                                                                                                          • Royal Bank of Scotland Group plc
                                                                                                                                                                                                                                          • Sainsbury's Bank
                                                                                                                                                                                                                                          • Tesco (UK)
                                                                                                                                                                                                                                          • Ulster Bank Ltd
                                                                                                                                                                                                                                          • Zopa Ltd

                                                                                                                                                                                                                                          Loans - UK - January 2015

                                                                                                                                                                                                                                          £1,995.00 (Excl.Tax)