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Personal Loans - UK - September 2010

This report examines the size of the personal loan market, providing context against the wider consumer credit market. It also looks at the wider economic factors affecting the demand for and supply of personal loans. Distribution and advertising trends are also considered, along with key developments in the market. Mintel’s consumer research explores credit product ownership, the financial position of consumers and their general attitudes towards personal loans.

  • There’s a strong consumer preference for more flexible forms of credit. Only 8% of adults say they have an unsecured personal loan, equivalent to around 4 million adults.
  • Consumers’ approach to credit has changed as a result of the slowdown, and demand for borrowing and, in particular, personal loans remains weak.
  • Around a third of consumers regard personal loans as a last resort product, with middle income groups and third agers most likely to agree with this sentiment.
  • In a sign of how the slowdown is causing some over-indebted consumers real financial difficulties, the proportion of loans arranged for debt consolidation has risen in recent years.
  • More than two-fifths of personal loan holders state they would always shop around for the best rate, although only a small proportion expect to extend their borrowing over the next year.
  • Around a quarter of adults believe that you’ve a better chance of being accepted for a loan if you go to an existing bank – this is particularly the case for consumers aged over 45.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Definition
          • Abbreviations
          • Future Opportunities

              • Trend: No Middleman
                • Trend: Resilience
                • Market in Brief

                  • Personal loan lending declined by 36% in 2009
                    • Figure 1: New gross unsecured loan advances, 2004-10
                  • Competitive context – loans lose ground
                    • Two distinct sectors in the loans market
                      • A third of adults have some type of unsecured debt
                        • Figure 2: Type of credit on which money is owed, June 2010
                      • Personal loan trends
                        • Demand for personal loans continues to fall
                          • Figure 3: Intended consumer credit activities, Q3/Q4 2002-Q2/Q3 2010
                        • New regulation to impact loan providers
                          • Branch remains key channel for loan
                            • Credit crisis leads to a sharp drop in personal loan advertising
                              • A third of adults regard loans as a last resort product
                                • Figure 4: Attitudes towards personal loans, June 2010
                            • Internal Market Environment

                              • Key points
                                • Household debt levels begin to fall
                                  • Figure 5: Outstanding lending to individuals, Q1 1993-Q2 2010
                                • Financial crisis leads to a major shift in the supply of credit
                                  • An increase in advertised personal loan rates
                                    • Figure 6: Average advertised rates versus actual interest rate on personal loans, three-month LIBOR and base rate, May 2007- May 2010
                                  • But lenders report some downward pressure on price
                                    • Changes to consumer credit legislation
                                      • Impact of the CCD
                                        • OFT issues new irresponsible lending guidance
                                          • PPI ban may be costly for loan providers
                                            • PPI complaints top the list…
                                              • Figure 7: Number of new complaints cases, by financial product or service, 2009 and 2010
                                            • … but loan complaints also increase
                                            • Broader Market Environment

                                              • Key points
                                                • Consumer confidence is on a downward trend
                                                  • Figure 8: UK Consumer confidence major indices, May 2004-June 2010
                                                • Spending intentions remain weak
                                                  • Figure 9: Spending and saving confidence, March 2001-June 2010
                                                • Consumers remain largely debt-averse…
                                                  • Figure 10: Agreement with selected lifestyle statements on finance, 2005-09
                                                • And take a more cautious approach to their finances
                                                  • Demand for personal loans continues to fall
                                                    • Figure 11: Intended consumer credit activities, Q3/Q4 2002-Q2/Q3 2010
                                                  • Unsecured loan write-off increased by 30% in 2009
                                                    • Figure 12: Quarterly write-offs of lending to individuals, by sector, 2004-10
                                                  • But lenders report an improving picture
                                                    • Unemployment and indebtedness
                                                    • Competitive Context

                                                      • Key points
                                                        • Competing credit products
                                                          • Personal loans lose ground in consumer credit market
                                                            • Figure 13: Gross consumer credit lending, by type, 2004-10
                                                          • Net consumer credit lending turned negative in 2009
                                                            • Figure 14: Net consumer credit lending, 2004-09 (seasonally adjusted)
                                                            • Figure 15: Amounts outstanding on personal loans, credit cards and overdrafts, 2004-10*
                                                          • Appetite for secured borrowing remains suppressed
                                                            • Figure 16: Housing Equity Withdrawal (seasonally adjusted), Q1 2003-Q1 2010
                                                          • Recession leads to growth in the high-cost credit market
                                                            • Figure 17: High cost credit lending, by sector, 2008
                                                        • Strengths and Weaknesses in the Market

                                                            • Figure 18: Unsecured personal loans – a summary of strengths, weaknesses, opportunities and threats, 2010
                                                        • Who’s Innovating?

                                                          • Key points
                                                            • A lack of innovation in the mainstream market
                                                              • Loan providers target existing customers
                                                                • Peer-to-peer lending continues to go from strength to strength
                                                                  • New entrants in the peer-to-peer lending market
                                                                    • Payday loan iPhone app
                                                                    • Market Size and Forecast

                                                                      • Key points
                                                                        • Loans market continues to decline
                                                                          • Figure 19: New gross unsecured loan advances – total market and MBBG, 2004-10
                                                                        • Forecast – Loan market is set for a slow and bumpy recovery
                                                                          • Figure 20: Forecast of gross unsecured loan advances – total market, 2005-15
                                                                      • Market Share

                                                                        • Key points
                                                                          • Major banking groups dominate the personal loan sector
                                                                            • Figure 21: Type of provider, where loan held, 2007-09
                                                                          • The top five loan providers
                                                                            • Banks reduce exposure to unsecured loans
                                                                              • Figure 22: Overview of loans and advances to customers (loans and unsecured lending) at selected personal loan providers, 2008-09
                                                                            • Other loan providers compete on price
                                                                            • Companies and Products

                                                                              • Major players
                                                                                • Barclays Plc
                                                                                  • HSBC Bank Plc
                                                                                    • Lloyds Banking Group Plc
                                                                                      • Nationwide Building Society
                                                                                        • RBS Group
                                                                                          • Grupo Santander
                                                                                          • Channels to Market

                                                                                            • Key points
                                                                                              • Branch remains the favoured channel to arrange loans
                                                                                                • Figure 23: Methods used to arrange loan, 2005-09
                                                                                              • Limited experience of arranging loans online
                                                                                                • Figure 24: Types of financial services products considered to arrange or buy over the internet, May 2010
                                                                                              • Desire to get the best possible loan deal is likely to boost online sales
                                                                                              • Brand Communication and Promotion

                                                                                                • Key points
                                                                                                  • Personal loan adspend continues on a sharp decline
                                                                                                    • Figure 25: Personal loan adspend, 2007-10
                                                                                                  • Lloyds TSB continues to top personal loan adspend
                                                                                                    • Figure 26: Top 15 advertisers in the unsecured loans category, 2007-10
                                                                                                  • Short-term credit providers face ASA scrutiny
                                                                                                    • Direct mail accounts for more than 80% of loan advertising
                                                                                                      • Figure 27: Total adspend on unsecured loans segmented, by media type, 2007-10
                                                                                                  • Consumer Finances in Context

                                                                                                    • Key points
                                                                                                      • Note on consumer research
                                                                                                        • Most people are coping financially despite the challenging economy
                                                                                                          • Figure 28: Current financial position, June 2010
                                                                                                        • No significant increase in the number of financial strugglers
                                                                                                          • Figure 29: Consumers’ financial situation, 2006-10
                                                                                                        • But consumers suggest greater financial caution
                                                                                                          • A generational divide
                                                                                                            • Figure 30: Current financial position, by lifestage, age group and presence of children in household, June 2010
                                                                                                          • Not all affluent consumers have a financial cushion
                                                                                                            • Figure 31: Current financial position by socio-economic group, annual household income and housing tenure, June 2010
                                                                                                        • Credit Ownership

                                                                                                          • Key points
                                                                                                            • More than half of people have some level of debt
                                                                                                              • Figure 32: Type of credit on which money is owed, June 2010
                                                                                                            • Those without savings are more likely to have unsecured debt
                                                                                                              • Figure 33: Type of credit on which money is owed, by current financial position, June 2010
                                                                                                            • Cross-sale opportunities
                                                                                                              • Figure 34: Type of credit on which money is owed, by most popular type of credit on which money is owed, June 2010
                                                                                                            • Multiple credit holders are more likely to have personal loans
                                                                                                              • Figure 35: Repertoire of type of credit on which money is owed, June 2010
                                                                                                              • Figure 36: Type of credit on which money is owed, by repertoire of type of credit on which money is owed, June 2010
                                                                                                          • Personal Loan Ownership and Motivation

                                                                                                            • Key points
                                                                                                              • Families represent a key group for personal loan ownership
                                                                                                                • Figure 37: Personal loan ownership, by age group, lifestage and children in household, June 2010
                                                                                                              • Higher income groups are more likely than average to have a loan
                                                                                                                • Figure 38: Personal loan ownership, by socio-economic group and annual household income, June 2010
                                                                                                              • Loan ownership remains broadly unchanged
                                                                                                                • Figure 39: Loan ownership, 2007-09
                                                                                                              • Sharp decline in the number of new loans taken out
                                                                                                                • Figure 40: When loan taken, 2007-09
                                                                                                              • Growth in longer-term loans
                                                                                                                • Figure 41: Tenure of loan, 2007-09
                                                                                                              • Some shift in loan amounts borrowed
                                                                                                                • Figure 42: Value of the loan, 2007-09
                                                                                                              • An increase in the proportion of loans for debt consolidation
                                                                                                                • Figure 43: Purpose of loan, 2007-09
                                                                                                            • Attitudes Towards Personal Loans

                                                                                                              • Key points
                                                                                                                • Loans – a grudge product
                                                                                                                  • Figure 44: Attitudes towards personal loans, by credit products owned, June 2010
                                                                                                                • The power of an existing relationship
                                                                                                                  • Shopping around for the best loan rate
                                                                                                                    • Financial situation influences attitude towards loans
                                                                                                                      • Figure 45: Attitudes towards personal loans, by current financial position, June 2010
                                                                                                                    • Over 35-54-year-olds more likely to shop around for the best rate
                                                                                                                      • Figure 46: Most popular attitudes towards personal loans, by demographics, June 2010
                                                                                                                  • Key Target Groups

                                                                                                                    • Key points
                                                                                                                      • Personal loans target groups
                                                                                                                        • Figure 47: Target groups for unsecured personal loans, June 2010
                                                                                                                      • Rate focused
                                                                                                                        • Provider influenced
                                                                                                                          • Unlikely loan prospects
                                                                                                                            • Not really bothered
                                                                                                                                • Figure 48: Attitudes towards personal loans, by target groups, June 2010
                                                                                                                            • Appendix – Broader Market Environment

                                                                                                                                • Figure 49: GDP, PDI, consumer expenditure and savings, at current prices, 2005-15
                                                                                                                                • Figure 50: Rate of UK unemployment, by gender, 2000-15
                                                                                                                            • Appendix – Current Financial Situation

                                                                                                                                • Figure 51: Current financial position, by demographics, June 2010
                                                                                                                            • Appendix – Credit Ownership

                                                                                                                                • Figure 52: Most common type of credit on which money is owed, by demographics, June 2010
                                                                                                                            • Appendix – Attitudes Towards Personal Loans

                                                                                                                                • Figure 53: Most popular attitudes towards personal loans, by demographics, June 2010
                                                                                                                                • Figure 54: Next most popular attitudes towards personal loans, by demographics, June 2010
                                                                                                                            • Appendix – Key Target Groups

                                                                                                                                • Figure 55: Type of credit on which money is owed, by target groups, June 2010
                                                                                                                                • Figure 56: Target groups, by demographics, June 2010
                                                                                                                                • Figure 57: Target groups, by current financial posiition, June 2010

                                                                                                                            Personal Loans - UK - September 2010

                                                                                                                            US $2,648.76 (Excl.Tax)