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Personal Loans - UK - December 2011

“Should interest rates start to edge up during 2012, as is widely predicted, and the unemployment rate rise further, credit defaults and impairment costs will also increase, and loan rates will come under pressure. However, given that lenders are currently benefiting from high margins on consumer credit products, there is arguably some room for manoeuvre and scope for tactical pricing.”

– Sarah Hitchcock, Senior Analyst


Some key questions answered in the report include:

  • How has the loans market performed recently?
  • What impact has the loss of competition had on the unsecured sector?
  • Who are the main players in this market?
  • Are there any areas of the market that are experiencing growth?
  • And what are the market’s short-term prospects?

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Table of contents

  1. Introduction

      • Report scope and product definitions
        • Abbreviations
        • Executive Summary

            • The market
              • Market nearing its trough?
                • Figure 1: Forecast of gross unsecured personal loan advances – fan chart, 2006-16
              • Yet there’s limited scope for growth over the next few years
                • Performance of related products
                  • Key factors
                    • Lenders have become more risk-averse
                      • PPI compensation hits lenders’ profits
                        • Regulatory developments
                          • Companies, brands and innovation
                            • The high street banks are the largest players in this market
                              • Recent innovation
                                • Limited advertising activity
                                  • Distribution trends
                                    • The consumer
                                      • Trends in loan ownership
                                        • Market penetration
                                          • Figure 2: Ownership of consumer credit and other lending products, August 2011
                                        • Purchasing behaviour
                                          • Figure 3: Factors taken into consideration when buying loan, August 2011
                                        • Sales channels used to arrange a loan
                                          • Figure 4: Channel used to apply for loan, August 2011
                                        • PPI take-up
                                          • Figure 5: Take-up of PPI by unsecured loan holders, August 2011
                                        • A significant minority of loan holders are struggling to keep up with their repayments
                                          • Assessing future demand
                                            • What we think
                                            • Issues in the Market

                                                • How has the loans market performed recently?
                                                  • What impact has the loss of competition had on the unsecured sector?
                                                    • Who are the main players in this market?
                                                      • Are there any areas of the market that are experiencing growth?
                                                        • And what are the market’s short-term prospects?
                                                        • Future Opportunities

                                                            • Offer ‘pure and simple’ terms to the more prudent customer
                                                              • Targeting the more social consumer
                                                              • Internal Market Environment

                                                                • Key points
                                                                  • Margins increase as competitive pressures ease
                                                                    • Figure 6: Average advertised rates versus actual interest rate on personal loans, three-month LIBOR and base rate, 2004-11 (as at May)
                                                                  • Proposed changes to consumer credit legislation
                                                                    • Reform of PPI market
                                                                      • The cost of PPI compensation
                                                                        • PPI is the most complained about financial product
                                                                          • Figure 7: Number of new complaints cases, by product category, 2009-11
                                                                      • Broader Market Environment

                                                                        • Key points
                                                                          • Summary of the main macroeconomic indicators impacting on the consumer credit market
                                                                            • Low consumer confidence depresses demand for credit
                                                                              • Figure 8: GfK Consumer Confidence Barometer – UK, January 2004-October 2011
                                                                            • Household unsecured debt has fallen by 11% over the 2008-11 period
                                                                              • Figure 9: The value of personal sector debt (mortgages and consumer credit) and as a proportion of total PDI, at current prices, 2000-11
                                                                            • Most consumer debt write-offs relate to unsecured lending
                                                                              • Figure 10: Quarterly write-offs of lending to individuals, by sector, 2005-11
                                                                          • Competitive Context

                                                                            • Key points
                                                                              • Rival products
                                                                                • New gross consumer credit lending increases slightly in 2011
                                                                                  • Figure 11: Gross consumer credit lending, by type, 2007-11
                                                                                • Rise in net lending, albeit from a very small base
                                                                                  • Figure 12: Net consumer credit lending, 2007-11
                                                                                • MBBG loan balances continue to shrink
                                                                                  • Figure 13: Amounts outstanding on overdrafts, credit cards and personal loans (MBBG only), September 2006-September 2011
                                                                                • Contraction in the secured loan market is most acute
                                                                                  • Figure 14: Value of new further advances and secured/homeowner loans, 2006-10
                                                                              • Strengths and Weaknesses in the Market

                                                                                  • Figure 15: Unsecured personal loans – summary of strengths, weaknesses, opportunities and threats, 2011
                                                                              • Who’s Innovating?

                                                                                • Key points
                                                                                  • Limited scope for product innovation in a contracting market
                                                                                    • Peer-to-peer lending and payday loans are the main growth areas
                                                                                      • Zopa launched the first online social lending site in 2005
                                                                                        • Other notable brands
                                                                                          • Key selling point
                                                                                            • Size of the market
                                                                                              • Payday loans are growing in prominence
                                                                                                • Size of the market
                                                                                                  • Typical customer expenditure
                                                                                                    • The target market
                                                                                                      • Leading brands in this market
                                                                                                        • Wonga distances itself from its payday loan rivals
                                                                                                        • Market Size and Forecast

                                                                                                          • Key points
                                                                                                            • New advances on unsecured personal loans stabilises
                                                                                                              • Figure 16: New gross unsecured loan advances – MBBG and total market, 2006-11
                                                                                                            • Mintel predicts a restrained and protracted recovery
                                                                                                              • Figure 17: The value of unsecured personal loans, by gross advances – fan chart, 2006-16
                                                                                                              • Figure 18: Forecast of gross lending on unsecured personal loans, 2006-16
                                                                                                            • Forecast methodology
                                                                                                              • Fan chart explanation
                                                                                                              • Market Share

                                                                                                                • Key points
                                                                                                                  • Financial crisis led to a sharp contraction in the supply of loans
                                                                                                                    • Lloyds TSB is the largest loan provider
                                                                                                                      • Figure 19: Value of unsecured consumer lending business outstanding (UK), by selected providers, 2009-10
                                                                                                                  • Companies and Products

                                                                                                                      • Barclays
                                                                                                                        • HSBC
                                                                                                                          • Lloyds Banking Group
                                                                                                                            • Nationwide Building Society
                                                                                                                              • RBS Group
                                                                                                                                • Grupo Santander
                                                                                                                                • Brand Communication and Promotion

                                                                                                                                  • Key points
                                                                                                                                    • Loan adspend increases in 2011, but is still way down on pre-crisis levels
                                                                                                                                      • Figure 20: Advertising expenditure on structured loan products, 2007-11
                                                                                                                                    • Short-term loan provider Wonga tops the adspend rankings…
                                                                                                                                      • Figure 21: Top ten brands in the unsecured loans category, 2009-11
                                                                                                                                    • … and invests heavily in TV and online advertising to promote its brand
                                                                                                                                      • Figure 22: Advertising expenditure on unsecured loans, by media type, 2009-11
                                                                                                                                  • Channels to Market

                                                                                                                                    • Key points
                                                                                                                                      • Branch sales still dominate this market…
                                                                                                                                        • Figure 23: Method used for arranging loans, 2008-11
                                                                                                                                      • … as most of the high street banks focus on targeting their existing customers…
                                                                                                                                        • … although online sales are growing strongly
                                                                                                                                        • Patterns in Ownership and Purchase Motivation

                                                                                                                                          • Key points
                                                                                                                                            • Loan penetration remains stable at 20%...
                                                                                                                                              • Figure 24: Personal loan ownership, 2008-11
                                                                                                                                            • … although recent applicants account for a declining share of the overall customer base
                                                                                                                                              • Figure 25: Length of time ago loan was taken out, 2008-11
                                                                                                                                            • Loan terms of four to five years are the most common
                                                                                                                                              • Figure 26: Length of loan term, 2011
                                                                                                                                            • Loan holders typically borrow between £4K and £15K
                                                                                                                                              • Figure 27: Loan amount borrowed, 2011
                                                                                                                                            • The top reason people take out a loan is to buy a car
                                                                                                                                              • Figure 28: Purpose of loan, 2008-11
                                                                                                                                          • The Target Market

                                                                                                                                            • Key points
                                                                                                                                              • About Mintel’s consumer survey
                                                                                                                                                • At least 6 million people in the UK have an unsecured personal loan
                                                                                                                                                  • Figure 29: Ownership of consumer credit and other lending products, August 2011
                                                                                                                                                • Many people have multiple lines of credit
                                                                                                                                                  • Figure 30: Ownership of consumer credit and other lending products, by top four products, August 2011
                                                                                                                                                • Customer segmentation
                                                                                                                                                  • Figure 31: Segmentation of UK consumers by the type of debt they hold, August 2011
                                                                                                                                                • 25-44-year-olds represent the main target market for loans
                                                                                                                                                  • Figure 32: Ownership of consumer credit and other lending products, by age, August 2011
                                                                                                                                                • The typical loan customer is a full-time employee in the family lifestage
                                                                                                                                                • Buying Behaviour

                                                                                                                                                  • Key points
                                                                                                                                                    • Half of all loan holders shopped around their loan…
                                                                                                                                                      • Figure 33: Shopped around for loan, August 2011
                                                                                                                                                    • … and of those who shopped around, half used a web aggregator
                                                                                                                                                      • Figure 34: Used price comparison site, August 2011
                                                                                                                                                    • Merely one in three customers opted for the cheapest loan
                                                                                                                                                      • Figure 35: Factors taken into consideration when buying loan, August 2011
                                                                                                                                                    • Most people arranged their loan in-branch or online
                                                                                                                                                      • Figure 36: Channel used to apply for loan, August 2011
                                                                                                                                                  • PPI Take-up

                                                                                                                                                    • Key points
                                                                                                                                                      • Mortgages offer the highest PPI conversion rate
                                                                                                                                                        • Figure 37: Take-up of PPI in relation to top five lending products, August 2011
                                                                                                                                                      • One in eight unsecured loan customers have PPI
                                                                                                                                                        • Figure 38: Take-up of PPI in relation to personal unsecured loan, August 2011
                                                                                                                                                    • Awareness and Usage of Peer-to-Peer Lending

                                                                                                                                                      • Key points
                                                                                                                                                        • Peer-to-peer lenders still have some way to go to improve awareness
                                                                                                                                                          • Figure 39: Usage and awareness of peer-to-peer lending sites, August 2011
                                                                                                                                                        • The under-35s are key to this market
                                                                                                                                                          • Figure 40: Usage and awareness of peer-to-peer lending sites, by age, August 2011
                                                                                                                                                        • There’s scope to improve adoption rates by women
                                                                                                                                                          • Figure 41: Usage and awareness of peer-to-peer lending sites, by gender and socio-economic group, August 2011
                                                                                                                                                        • Around one in four loan holders are unaware of these sites
                                                                                                                                                          • Figure 42: Usage and awareness of peer-to-peer lending sites, by gender and age, August 2011
                                                                                                                                                      • Current Financial Situation

                                                                                                                                                        • Key points
                                                                                                                                                          • One in seven loan customers are struggling or in financial trouble
                                                                                                                                                            • Figure 43: Current financial situation – all adults versus personal loan holders, August 2011
                                                                                                                                                          • More than two fifths of adults think they are worse off now than a year ago
                                                                                                                                                            • Figure 44: Financial situation in comparison to a year ago – all adults versus personal loan holders, August 2011
                                                                                                                                                          • Just one in five loan holders are confident that they will be ‘okay’ financially over the coming year
                                                                                                                                                            • Figure 45: Outlook for financial situation over the coming year – all adults versus personal loan holders, August 2011
                                                                                                                                                          • The downturn has had a major impact on more than one in four loan holders
                                                                                                                                                            • Figure 46: Impact of economic downturn on own situation – all adults versus personal loan holders, August 2011
                                                                                                                                                          • Nearly one in three loan holders are putting their spare cash towards repaying debt
                                                                                                                                                            • Figure 47: Discretionary spending choices – all adults versus personal loan holders, August 2011
                                                                                                                                                        • Financial Plans and Priorities

                                                                                                                                                          • Key points
                                                                                                                                                            • There are 880,000 potential new loan customers
                                                                                                                                                              • Figure 48: Financial plans and priorities – all adults versus personal loan holders, August 2011
                                                                                                                                                            • Prospective loan customers tend to be aged under 35
                                                                                                                                                              • Figure 49: Financial plans and priorities, by gender and age group, August 2011
                                                                                                                                                          • Appendix – Ownership of Top Five Lending Products by Demographics

                                                                                                                                                              • Figure 50: Top five lending products owned, by demographics, August 2011
                                                                                                                                                          • Appendix – Demographic Profile of Unsecured Loan Customers

                                                                                                                                                              • Figure 51: Profile of unsecured personal loan holders versus the total sample, by demographics, August 2011
                                                                                                                                                          • Appendix – Demographic Segmentation of Customer Types

                                                                                                                                                              • Figure 52: Segmentation of four customer types, by demographics, August 2011

                                                                                                                                                          Companies Covered

                                                                                                                                                          • Alliance & Leicester
                                                                                                                                                          • Barclaycard
                                                                                                                                                          • Barclays Bank plc
                                                                                                                                                          • Black Horse Ltd
                                                                                                                                                          • Bradford & Bingley plc
                                                                                                                                                          • Cheshire Building Society
                                                                                                                                                          • Derbyshire Building Society
                                                                                                                                                          • Dunfermline Building Society
                                                                                                                                                          • First Direct
                                                                                                                                                          • Freedom Finance
                                                                                                                                                          • Grupo Santander Central Hispano S.A.
                                                                                                                                                          • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                          • HFC Bank Ltd
                                                                                                                                                          • HSBC Private Bank (UK) Limited
                                                                                                                                                          • Lloyds Banking Group
                                                                                                                                                          • Lombard Direct
                                                                                                                                                          • Nationwide Building Society
                                                                                                                                                          • NatWest
                                                                                                                                                          • Portman Building Society
                                                                                                                                                          • Royal Bank of Scotland Group plc
                                                                                                                                                          • Standard Life Bank Limited

                                                                                                                                                          Personal Loans - UK - December 2011

                                                                                                                                                          £1,995.00 (Excl.Tax)