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Personal Loans - UK - January 2014

“Consumers want to take control of their borrowing from the application process to the repayment of the loan. Loan providers will face a challenge to meet this demand for flexibility while still supporting those needing a more structured approach.”

– Richard Shepherd, Research Analyst – Financial Services

Some questions answered in this report include:

  • Who is going to fill the gap for less creditworthy consumers?
  • Are consumers favouring online loan applications compared to loans arranged face to face?
  • Who are the most likely purchasers of future loans?
  • Do consumers want to take more control of their loan borrowing?

Personal loan lending recorded strong growth in 2013 as the UK economic recovery gathered pace. Mintel estimates that gross advances increased by 12% over the year. Higher levels of employment and improvements in consumer confidence have helped to boost the appetite for lending, while low interest rates and the Bank of England’s Funding for Lending scheme helped lenders to offer consumers some of the cheapest loans in a decade.

The market has, however, undergone some changes in the last 12 months. The growth of niche lending sectors, primarily in loans for those with poor credit history, has seen a number of new competitors. In the mainstream market supermarket banks and challenger brands have made strides to reel in the dominance of the leading current account providers.

Alternative lenders have led the way in innovations, but consumer demand is driving traditional lenders to catch up, particularly in digital media. Mintel’s research has found that consumers are looking for more control over their loan borrowing, prompting development in web services.

This report examines the personal loans market, including discussion of recent changes in the industry. The size of the market is analysed and a five-year forecast for the value of new advances is provided. The sector’s major players are examined, along with notable product developments. Mintel’s specially commissioned consumer research provides insight into loan ownership, the reasons for taking loans and the methods of researching and arranging loans. The likelihood of taking out a loan in the next 12 months is considered, as well as the appetite for different loan product features.

This report looks at the unsecured personal loan market. In contrast to secured loans, which are typically secured against the borrower’s property, unsecured personal loans are borrowed without any collateral being put up by the borrower. 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.

The report will mostly focus on traditional personal loans. Traditional personal loans are offered by banks, building societies, credit card providers and some retailers. However, the market is now also home to alternative loan product providers such as payday lenders and peer-to-peer lenders. These products are not considered in detail but the report investigates whether there are lessons for traditional lenders to take from the recent success of these types of lenders.

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Table of contents

  1. Introduction

      • Report scope
        • Abbreviations
        • Executive Summary

            • The market
              • Strong growth seen in personal loans market in 2013
                • Figure 1: Forecast of personal loans industry revenue – fan chart, 2008-18
              • Large growth in unsecured lending
                • Figure 2: Gross unsecured lending, by product type, 2008-13
              • Market factors
                • Consumer confidence reflects economic recovery
                  • Figure 3: Consumer confidence barometer trend – UK, January 2010-November 2013
                • Below-inflation wage rises squeeze household incomes
                  • Figure 4: Annual change in average weekly earnings, CPI and RPI, 2007-13
                • Tighter regulation for alternative lenders
                  • Companies, products and innovations
                    • Niche loan sectors have given rise to new market entrants
                      • Innovation focused on improved online services
                        • Advertising dominated by payday lenders
                          • The consumer
                            • Personal loans are the fourth most commonly held form of credit
                              • Figure 5: Types of loans and credit currently owned, November 2013
                            • Recently arranged loans show increase in consumer appetite for credit
                              • Figure 6: Period of time that loan owners have held their most recent loan for, November 2013
                            • Personal loans are used for one-off purchases and debt consolidation
                              • Figure 7: Reasons for taking out most recent loan product, November 2013
                            • Over a quarter of consumers could take a loan in the next year
                              • Figure 8: Likelihood of taking out a loan product in the next 12 months, November 2013
                            • Face to face is the most used method of arranging a loan
                              • Figure 9: Methods used by loan owners to arrange their most recent loan, November 2013
                            • 42% of loans were taken with consumers’ main bank
                              • Figure 10: Behaviours affecting loan application, November 2013
                            • Consumers favour online services to gain control over their loans
                              • Figure 11: Consumer appetite for different loan features, November 2013
                            • What we think
                            • Issues and Insights

                                • Who is going to fill the gap for less creditworthy consumers?
                                  • The issues
                                    • The implications
                                      • Consumers are increasingly favouring online loan applications
                                        • The issues
                                          • The implications
                                            • Existing loan holders are the most likely purchasers of future loans
                                              • The issues
                                                • The implications
                                                  • People want to take control of their loan borrowing
                                                    • The issues
                                                      • The implications
                                                      • Trend Application

                                                        • Consumers are wary of taking personal loans, despite their positive uses
                                                          • Online has become the primary channel to market for personal loans
                                                            • Consumer demands push personal loans towards a digital future
                                                            • Market Drivers

                                                              • Key points
                                                                • Consumer confidence boosts prospects of future lending growth…
                                                                  • Figure 12: Consumer confidence barometer trend – UK, January 2010-November 2013
                                                                • …but most people remain wary about taking out loan products in the next year
                                                                  • Figure 13: Likelihood of taking a loan product in the next 12 months, November 2013
                                                                • Increased employment is good news for lenders
                                                                  • Figure 14: Employment rate (aged 16-64), seasonally adjusted, July 2010-September 2013
                                                                • Prices continue to rise quicker than earnings
                                                                  • Figure 15: Annual change in average weekly earnings, CPI and RPI, 2007-13
                                                                • Low rates still viable for lenders
                                                                  • Figure 16: Effective rate on personal loans, three-month LIBOR, and base rate, 2007-13 (monthly)
                                                                  • Figure 17: Quoted household interest rates for personal loans of £5K and £10K, January 2007-November 2013
                                                                • Major drop in unsecured write-offs
                                                                  • Figure 18: Quarterly write-offs of lending to individuals, by sector, 2007-13
                                                                • Regulatory changes
                                                                  • Authorisation process
                                                                    • Payday loan companies face tougher rules
                                                                      • Greater protection for peer-to-peer lenders
                                                                      • Competitor Products

                                                                        • Key points
                                                                          • Overall unsecured lending sees double-digit growth
                                                                            • Figure 19: Gross consumer credit lending, by type, 2008-13
                                                                          • Significant increase in net unsecured lending
                                                                            • Figure 20: Net value of consumer credit lending, by type, 2008-13
                                                                          • Increase in mortgage lending fails to stimulate secured loan market
                                                                            • Figure 21: Gross secured lending to individuals, 2008-13
                                                                        • Market SWOT Analysis

                                                                            • Figure 22: Personal loans market – SWOT analysis, 2014
                                                                        • Who’s Innovating?

                                                                          • Key points
                                                                            • The need to innovate
                                                                              • Development in digital media
                                                                                • Adoption of soft searches
                                                                                  • Repayment holidays and payment waiver may be set to replace PPI
                                                                                    • Growth of niche market between payday and traditional loan products
                                                                                    • Market Size and Forecast

                                                                                      • Key points
                                                                                        • Sustained growth in personal loan advances
                                                                                          • Figure 23: New gross unsecured loan advances – MBBG and total market, 2008-13
                                                                                        • Market forecast
                                                                                          • Personal loans market expected to almost double in five years
                                                                                            • Figure 24: Forecast of the value of unsecured personal loans, by gross advances, fan chart, 2008-18
                                                                                            • Figure 25: Forecast of the value of unsecured personal loans, by gross advances, at current and constant prices, 2008-18
                                                                                          • Forecast methodology
                                                                                            • Fan chart explanation
                                                                                            • Market Share

                                                                                              • Key points
                                                                                                • Lloyds Banking Group is the UK’s largest personal loan lender
                                                                                                  • Figure 26: Value of outstanding unsecured consumer lending (UK), by selected providers, 2011 and 2012
                                                                                                • Strategic drop in Santander’s loan lending
                                                                                                  • Supermarket lenders perform well against the banks
                                                                                                  • Companies and Products

                                                                                                    • Barclays
                                                                                                      • Company background
                                                                                                        • Relevant brands and subsidiaries
                                                                                                          • Loan product range
                                                                                                            • Recent financial performance
                                                                                                              • Figure 27: Interim financial data (adjusted) for Barclays UKRBB, Q3 2012 and Q3 2013
                                                                                                            • Recent activity
                                                                                                              • Grupo Santander
                                                                                                                • Company background
                                                                                                                  • Loan product range
                                                                                                                    • Recent financial performance
                                                                                                                      • Figure 28: Interim financial data for Santander UK plc Retail Banking, Q3 2012 and Q3 2013
                                                                                                                    • Recent activity
                                                                                                                      • HSBC
                                                                                                                        • Company background
                                                                                                                          • Relevant brands and subsidiaries
                                                                                                                            • Loan product range
                                                                                                                              • Recent financial performance
                                                                                                                                • Figure 29: Annual financial data for HSBC Bank plc retail banking, 2011 and 2012
                                                                                                                              • Recent activity
                                                                                                                                • Lloyds Banking Group
                                                                                                                                  • Company background
                                                                                                                                    • Relevant brands and subsidiaries
                                                                                                                                      • Loan product range
                                                                                                                                        • Recent financial performance
                                                                                                                                          • Figure 30: Interim management statement for Lloyds Banking Group plc, Q3 2012 and Q3 2013
                                                                                                                                        • Recent activity
                                                                                                                                          • Nationwide
                                                                                                                                            • Company background
                                                                                                                                              • Relevant brands and subsidiaries
                                                                                                                                                • Loan product range
                                                                                                                                                  • Recent financial performance
                                                                                                                                                    • Figure 31: Annual financial data for Nationwide, 2012 and 2013
                                                                                                                                                  • Recent activity
                                                                                                                                                    • RBS Group
                                                                                                                                                      • Company background
                                                                                                                                                        • Relevant brands and subsidiaries
                                                                                                                                                          • Loan product range
                                                                                                                                                            • Recent financial performance
                                                                                                                                                              • Figure 32: Interim financial data for RBS Group, Q3 2012 and Q3 2013
                                                                                                                                                            • Recent activity
                                                                                                                                                              • Wonga
                                                                                                                                                                • Company background
                                                                                                                                                                  • Relevant brands and subsidiaries
                                                                                                                                                                    • Loan product range
                                                                                                                                                                      • Recent financial performance
                                                                                                                                                                        • Figure 33: Annual financial data for Wonga Group limited, 2011 and 2012
                                                                                                                                                                      • Recent activity
                                                                                                                                                                        • Zopa
                                                                                                                                                                          • Company background
                                                                                                                                                                            • Loan product range
                                                                                                                                                                              • Recent financial performance
                                                                                                                                                                                • Figure 34: Annual accounts of Zopa, 2011 and 2012
                                                                                                                                                                              • Recent activity
                                                                                                                                                                                • Sainsbury’s Bank
                                                                                                                                                                                  • Company background
                                                                                                                                                                                    • Loan product range
                                                                                                                                                                                      • Recent financial performance
                                                                                                                                                                                        • Figure 35: Annual financial statement for Sainsbury’s Bank plc, 2011 and 2012
                                                                                                                                                                                      • Recent activity
                                                                                                                                                                                        • Tesco Bank
                                                                                                                                                                                          • Company background
                                                                                                                                                                                            • Loan product range
                                                                                                                                                                                              • Recent financial performance
                                                                                                                                                                                                • Figure 36: Interim financial report for Tesco Personal Finance plc, H1 2012 and H1 2013
                                                                                                                                                                                              • Recent activity
                                                                                                                                                                                              • Brand Communication and Promotion

                                                                                                                                                                                                • Key points
                                                                                                                                                                                                  • Payday lenders continue heavy advertising spend
                                                                                                                                                                                                    • Figure 37: Advertising expenditure on structured loan products, 2009-13
                                                                                                                                                                                                  • Large push in spending from Amigo Loans
                                                                                                                                                                                                    • Figure 38: Top 15 spenders on advertising in the personal loans market, 2011-13
                                                                                                                                                                                                  • Television is the dominant advertising channel for loans
                                                                                                                                                                                                    • Figure 39: Advertising expenditure on unsecured loans (inc. payday loans), by media type, 2011-13
                                                                                                                                                                                                  • Online advertising continues to decline
                                                                                                                                                                                                    • Non-payday lenders turn to the press
                                                                                                                                                                                                      • Figure 40: Advertising expenditure on unsecured loans, by media type, 2011-13
                                                                                                                                                                                                  • Loan and Credit Product Ownership

                                                                                                                                                                                                    • Key points
                                                                                                                                                                                                      • Personal loans are the fourth most widely held form of credit
                                                                                                                                                                                                        • Figure 41: Types of loans and credit currently owned, November 2013
                                                                                                                                                                                                      • Loan ownership is higher among 25-54-year-olds
                                                                                                                                                                                                        • Figure 42: Unsecured loan ownership, by age, November 2013
                                                                                                                                                                                                      • Personal loans are more likely to be held by above-average earners…
                                                                                                                                                                                                        • …but ownership is also higher than average among the financially stretched
                                                                                                                                                                                                          • Loan ownership is more prevalent among multiple credit holders
                                                                                                                                                                                                            • Figure 43: Types of loans and credit currently owned, by number of types of loans and credit products currently owned, November 2013
                                                                                                                                                                                                          • Period of loan ownership
                                                                                                                                                                                                            • Some 66% of most recent loans were taken out in the last two years
                                                                                                                                                                                                              • Figure 44: Period of time that loan owners have held their most recent loan for, November 2013
                                                                                                                                                                                                          • Reasons for Loan Ownership

                                                                                                                                                                                                            • Key points
                                                                                                                                                                                                              • Most loans pay for one-off purchases
                                                                                                                                                                                                                • Figure 45: Reasons for taking out most recent loan product, November 2013
                                                                                                                                                                                                              • Debt consolidation is less prevalent, while car purchases have increased
                                                                                                                                                                                                                • Figure 46: Reason for loan ownership, by period of time most recent loan held for, November 2013
                                                                                                                                                                                                              • Debt consolidation still the most prevalent reason for new loans among personal loan holders
                                                                                                                                                                                                                • Figure 47: Reasons for taking out most recent loan product, by selected types of loans and credit currently owned, November 2013
                                                                                                                                                                                                            • Likelihood to Arrange Loan in Next 12 Months

                                                                                                                                                                                                              • Key points
                                                                                                                                                                                                                • Most consumers are unlikely to take a loan in the next year
                                                                                                                                                                                                                  • Figure 48: Likelihood of taking out a loan product in the next 12 months, November 2013
                                                                                                                                                                                                                • Current loan holders more likely to borrow again in next 12 months
                                                                                                                                                                                                                  • Figure 49: Likelihood of taking out a loan product in the next 12 months, by types of loans and credit currently owned, November 2913
                                                                                                                                                                                                                • Most likely loan purchasers have held their current loan for one to two years
                                                                                                                                                                                                                  • Figure 50: 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, November 2013
                                                                                                                                                                                                              • Methods of Arranging Loans

                                                                                                                                                                                                                • Key points
                                                                                                                                                                                                                  • Over a third of loans still arranged in person
                                                                                                                                                                                                                    • Figure 51: Methods used by loan owners to arrange their most recent loan, November 2013
                                                                                                                                                                                                                  • Equal use of online and offline application methods…
                                                                                                                                                                                                                    • Figure 52: Methods used by loan owners to arrange their most recent loan, by selected types of loans and credit currently owned, November 2013
                                                                                                                                                                                                                  • …except when applying for a car loan
                                                                                                                                                                                                                    • Online applications have increased over time
                                                                                                                                                                                                                      • Figure 53: Methods used by loan owners to arrange their most recent loan, by period of time that loan owners have held their most recent loan for, November 2013
                                                                                                                                                                                                                  • Research and Loan Selection

                                                                                                                                                                                                                    • Key points
                                                                                                                                                                                                                      • Less than a quarter of loan holders undertook online research
                                                                                                                                                                                                                        • Figure 54: Behaviours affecting loan application, November 2013
                                                                                                                                                                                                                      • Men and the young are more likely to research loans online
                                                                                                                                                                                                                        • Figure 55: Percentage of loan holders who researched their loan online, by gender and age, November 2013
                                                                                                                                                                                                                      • High proportion of borrowing from main bank
                                                                                                                                                                                                                        • Figure 56: Behaviours affecting loan application, by types of loans and credit currently owned, November 2013
                                                                                                                                                                                                                    • Consumer Appetite for Different Loan Features

                                                                                                                                                                                                                      • Key points
                                                                                                                                                                                                                        • Consumers want to be in control of their loan product
                                                                                                                                                                                                                          • Figure 57: Consumer appetite for different loan features, November 2013
                                                                                                                                                                                                                        • Balancing the need to advise and the convenience of online channels
                                                                                                                                                                                                                          • Loan holders want quick, easy applications and access to cash
                                                                                                                                                                                                                            • Figure 58: Factors affecting possible loan purchase, by most selected types of loans and credit currently owned, November 2013
                                                                                                                                                                                                                          • Prospective loan buyers demand digital environment
                                                                                                                                                                                                                            • Figure 59: Factors affecting possible loan purchase, by likelihood of purchasing a loan product in the next 12 months, November 2013
                                                                                                                                                                                                                        • Appendix – Market Size and Forecast

                                                                                                                                                                                                                            • Figure 60: Best- and worst-case forecast of the value of unsecured personal loans, by gross advances, 2013-18
                                                                                                                                                                                                                        • Appendix – Loan and Credit Product Ownership

                                                                                                                                                                                                                            • Figure 61: Most popular types of loans and credit currently owned, by demographics, November 2013
                                                                                                                                                                                                                            • Figure 62: Next most popular types of loans and credit currently owned, by demographics, November 2013
                                                                                                                                                                                                                            • Figure 63: Other types of loans and credit currently owned, by demographics, November 2013
                                                                                                                                                                                                                            • Figure 64: Period of time that loan owners have held their most recent loan for, by demographics, November 2013
                                                                                                                                                                                                                        • Appendix – Reasons for Loan Ownership

                                                                                                                                                                                                                            • Figure 65: Most popular reasons for loan ownership, by demographics, November 2013
                                                                                                                                                                                                                            • Figure 66: Next most popular reasons for loan ownership, by demographics, November 2013
                                                                                                                                                                                                                        • Appendix – Likelihood to Arrange Loan in Next 12 Months

                                                                                                                                                                                                                            • Figure 67: Likelihood of purchasing a loan product in the next 12 months, by demographics, November 2013
                                                                                                                                                                                                                        • Appendix – Methods of Arranging Loan

                                                                                                                                                                                                                            • Figure 68: Most popular methods used by loan owners to arrange their most recent loan, by demographics, November 2013
                                                                                                                                                                                                                            • Figure 69: Next most popular methods used by loan owners to arrange their most recent loan, by demographics, November 2013
                                                                                                                                                                                                                        • Appendix – Research and Loan Selection

                                                                                                                                                                                                                            • Figure 70: Most popular behaviours affecting loan application, by demographics, November 2013
                                                                                                                                                                                                                            • Figure 71: Most popular behaviours affecting loan application, by demographics, November 2013 (continued)
                                                                                                                                                                                                                            • Figure 72: Next most popular behaviours affecting loan application, by demographics, November 2013
                                                                                                                                                                                                                        • Appendix – Consumer Appetite for Different Loan Features

                                                                                                                                                                                                                            • Figure 73: Consumer appetite for different loan features, by demographics, November 2013
                                                                                                                                                                                                                            • Figure 74: Consumer appetite for different loan features, by demographics, November 2013 (continued)
                                                                                                                                                                                                                            • Figure 75: Consumer appetite for different loan features, by demographics, November 2013
                                                                                                                                                                                                                            • Figure 76: Consumer appetite for different loan features, by demographics, November 2013 (continued)

                                                                                                                                                                                                                        Companies Covered

                                                                                                                                                                                                                        • Barclays Bank plc
                                                                                                                                                                                                                        • Grupo Santander Central Hispano S.A.
                                                                                                                                                                                                                        • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                                                        • HSBC Private Bank (UK) Limited
                                                                                                                                                                                                                        • ING Direct
                                                                                                                                                                                                                        • J. Sainsbury
                                                                                                                                                                                                                        • Lloyds Banking Group
                                                                                                                                                                                                                        • Marks & Spencer
                                                                                                                                                                                                                        • Nationwide Mutual Insurance Company
                                                                                                                                                                                                                        • NatWest
                                                                                                                                                                                                                        • Royal Bank of Scotland Group plc
                                                                                                                                                                                                                        • Sainsbury's Bank
                                                                                                                                                                                                                        • Tesco (UK)
                                                                                                                                                                                                                        • Zopa Ltd

                                                                                                                                                                                                                        Personal Loans - UK - January 2014

                                                                                                                                                                                                                        £1,995.00 (Excl.Tax)