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Secured Lending Products - UK - January 2009

This report examines the UK market for secured lending products, comprising both further advances and secured or homeowner loans.

The past 18 months have seen unprecedented turmoil in the banking and finance industries of the UK. The secured lending market has been at the heart of this turbulence, hit by the drought in the wholesale lending markets and the fall in the housing market.

Caught between a contraction in lending capacity and the reduced willingness on the part of consumers to borrow money, the secured lending market has been squeezed severely.

However, there are reasons to believe that over the medium-to-long term, secured lending could rise phoenix-like from the ashes of the credit crunch. Secured lending provides the lender with the security to lend in an era of financial conservatism and will offer the borrower lower interest rates in an period when consumers will be more cautious about taking on debt.

This report examines the current state of play in the secured lending market, highlighting the impact of the economic downturn and credit crisis, as well as changes in the consumer environment. Market size is assessed, and placed in the context of competing products. Consumer research also provides an insight into product ownership, motivations for obtaining a secured loan and attitudes towards the market, suggesting new approaches for those marketing secured loan products.

Key report themes:

  • The secured lending market has contracted significantly in the past year. A combination of economic forces plus the much tighter conditions surrounding the sale of payment protection insurance (a prime profit generator) has cut the legs from under the market.

  • It seems likely that demand and lending capacity for both mortgage further advances and homeowner loans will stay weak in the next 12 months.

  • But consumer research for this report indicates that by careful targeting and a new approach to marketing, secured lending could be an important lending product post credit crunch.

  • By 2010/11, demand should improve, which will create conditions conducive to increased lending capacity: having seen a significant contraction in capacity in 2008, by 2010 some of that capacity is likely to come back into the market.

  • However, the restrictions on the sale of PPI policies will mean that lenders will much reorganise their business models to base their sales effort and cost structures on an environment in which PPI is no longer the prime profit generator.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Shift the lending priorities from unsecured to secured
            • Arouse an eager want – using home to fund lifestyle
              • Mortgage brokers an ideal route to market
                • A new business model?
                  • Medium-to-long term prospects look more positive
                    • Rebuilding trust
                    • Market in Brief

                      • 2008: Annus horribilis
                        • Figure 1: Trends in secured lending gross advances (£bn), 2003-08
                      • Advertising expenditure is also in decline
                        • Full-blown retreat from the market
                          • Big Five dominate
                            • Remaining providers look to the future
                              • Some 13% of adults have a secured loan
                                • Figure 2: Credit ownership, November 2008
                              • Secured lending not necessarily sub-prime
                                • Targeting opportunities
                                  • Figure 3: Secured borrowing target groups, November 2008
                              • Internal Market Environment

                                • Key points
                                  • Less collateral for security
                                    • Figure 4: Index of average mix-adjusted uk house prices (fed 2002=100), 2002-08
                                  • And set to go on shrinking?
                                    • Figure 5: The percentage annual change+ in the index of average mix-adjusted uk house prices, Jan 2007-Oct 2008
                                  • Personal debt has continued to climb…
                                    • Figure 6: The total debt liabilities of uk households (£bn), 2000-08
                                  • …but is debt going out of fashion?
                                    • Figure 7: The annual percentage change in total debt libailities of households, Q4 2005-Q2 2008
                                  • Lenders are looking for more security
                                    • Figure 8: Changes in the availability of credit provided to households *, Q2 2007 to Q4 2008
                                • Broader Market Environment

                                  • Key points
                                    • Customer base is shrinking
                                      • Figure 9: Trends in England and Wales, 1991-2007
                                    • Economy enters recession
                                      • Figure 10: Quarter-on-quarter growth of real gdp, Q1 2003-Q3 2008
                                    • Unemployment: A major factor limiting borrowing
                                      • Figure 11: Level of unemployment in the uk (all: aged 16+) seasonally adjusted+, Q1 2004-Q3 2008
                                    • The number of bankruptcies and IVAs begin to rise again
                                      • Figure 12: Number of individual bankruptcy orders and IVAs in England and Wales (seasonally adjusted), Q1 2005-Q3 2008
                                    • Arrears and repossessions also rise
                                      • Figure 13: Mortgages in arrears and homes processed, Q1 2008-Q3 2008
                                    • Pressure on lenders to lower rates
                                      • Figure 14: UK Inter-bank, 3 months mid point+ and selected UK bank base rates, January 2000-December 2008
                                    • Banks attempt to rebuild their capital base…
                                      • … but don’t know which way to turn
                                        • Figure 15: Factors contributing* to changes in secured credit availability to households, Q2 2007-Q4 2008
                                    • Legislative and Regulatory Environment

                                      • Key points
                                        • Where have all the profits gone: the end of PPI?
                                          • Split regulatory framework
                                            • Consumer Credit Act
                                              • A new regulatory framework?
                                                • Figure 16: The UK and European regulatory regimes for secured personal loans
                                              • OFT launches irresponsible lending review
                                              • Consumer Context

                                                • Key points
                                                  • Consumer confidence falls to a new low
                                                    • Figure 17: Monthly, 3-monthly and 12-monthly UK consumer confidence indices*, January 1988-September 2008
                                                  • Intentions to take out a loan continue to decline
                                                    • Figure 18: Intended consumer credit activities, Q3/Q4 2002-Q3/Q4 2008
                                                  • More than half of all adults are already feeling the pinch
                                                    • Figure 19: Key financial groups, December 2008
                                                  • Who is feeling under pressure?
                                                  • Competitive Context

                                                    • Key points
                                                      • Credit cards and mortgages are the most common form of consumer debt
                                                        • Figure 20: Forms of credit held, November 2008
                                                      • Consumers concerned about secured debt
                                                        • Figure 21: Total gross secured and unsecured consumer lending, 2000-08+
                                                      • Are credit cards plugging a gap?
                                                        • Figure 22: Total gross lending and net amounts outstanding on credit card lending (seasonally adjusted), Jan 2003-Sep 2008
                                                      • Personal loans market in sharp decline
                                                        • Figure 23: Estimated gross lending for unsecured personal loans, 2003-08
                                                      • Overdraft borrowing remains flat
                                                        • Figure 24: Total borrowing on overdrafts, £bn and the annual change in borrowing+, Jan 2006-Oct 2008
                                                      • Sell and rent back
                                                        • The rise of the pawnbroker
                                                        • Strengths and Weaknesses in the Market

                                                            • Figure 25: Secured lending products – strengths and weaknesses in the market, 2008
                                                          • Strengths in the market
                                                            • High levels of owner-occupancy and mortgage ownership
                                                              • Banks want security
                                                                • Mortgage advances now heavily inclined towards debt consolidation
                                                                  • Targeting an affluent audience
                                                                    • Weaknesses in the market
                                                                      • House prices are falling
                                                                        • Bank lending policies
                                                                          • Declining consumer appetite for debt
                                                                            • Reluctance on the part of many homeowners to place their homes at risk
                                                                            • Who’s Innovating?

                                                                              • Key points
                                                                                • Innovation not a first priority
                                                                                  • Recycling declined loans
                                                                                    • More broker services
                                                                                      • Fixed rate secured loans
                                                                                      • Trade Perspective

                                                                                          • We must wait until 2010 or 2011 for a market recovery
                                                                                            • Can the effects of the recession be offset?
                                                                                              • Are we likely to see any product innovation in 2009?
                                                                                                • Could TCF rules expand the market?
                                                                                                  • Changes to PPI sales rules could mean higher rates and fees
                                                                                                  • Market Size and Forecast

                                                                                                    • Key points
                                                                                                      • Is there a secured loan market anymore?
                                                                                                        • Figure 26: Size of the secured lending market, by sector and gross advances, 2003-08
                                                                                                      • Ownership of secured loans remains fairly static
                                                                                                        • Figure 27: Secured lending product ownership, October 2007 and November 2008
                                                                                                      • The level of housing equity withdrawal declines
                                                                                                        • Figure 28: Housing equity withdrawal (£bn, seasonally adjusted), Q1 2001-Q1 2008
                                                                                                      • Forecast
                                                                                                        • Figure 29: Forecast of the secured lending market, by sector and gross advances, 2008-13
                                                                                                      • Factors used in the forecast
                                                                                                      • Market Share

                                                                                                        • Key points
                                                                                                          • The new HBOS/Lloyds TSB group dominates the market
                                                                                                            • Figure 30: Estimated share of gross secured lending+, 2007
                                                                                                          • Just six providers left in the secured personal loans segment…
                                                                                                            • But still over 250 brokers
                                                                                                            • Companies and Products

                                                                                                              • Key points
                                                                                                                • Providers retrench
                                                                                                                  • Figure 31: Providers’ willingness to grant secured loans to households, Q2 2007-0Q4 2008
                                                                                                                • Maximum loan amounts decline
                                                                                                                  • Figure 32: Provider’ maximum loan amounts when granting secured loans to households, Q2 2007-0Q4 2008
                                                                                                                • It’s a small world after all
                                                                                                                  • Barclays calls time on Firstplus and…
                                                                                                                    • Fair and square
                                                                                                                      • Picture Financial: Now out of the picture
                                                                                                                        • White Label does the market hokey cokey
                                                                                                                          • HSBC: Secured lending not part of its strategy
                                                                                                                            • Citigroup saw no future in its secured lending operations
                                                                                                                            • Brand Communication and Promotion

                                                                                                                              • Key points
                                                                                                                                • Adspend reflects the market trends
                                                                                                                                  • Figure 33: Secured personal loan adspend, 2003/04-2007/08
                                                                                                                                • The credit crunch cuts adspend across the board
                                                                                                                                  • Figure 34: Personal loan adspend (October to September each year) by type, 2003/04-2007/08
                                                                                                                                  • Figure 35: Breakdown of personal loan adspend (October to September each year) by type, 2003/04-2007/08
                                                                                                                                • TV and direct dominate adspend but the internet rises in importance
                                                                                                                                  • Figure 36: Secured personal loan adspend (october to september each year) by media type, 2003/04-2007/08
                                                                                                                                • TV is more important to secured lenders
                                                                                                                                  • Figure 37: Breakdown (%) of personal loan adspend, by sector and media outlet, year to September 2008
                                                                                                                                • Virtually all the major loan providers and brokers cut adspend
                                                                                                                                  • Figure 38: Secured personal loan adspend, by provider (October to September), 2003/04-2007/08
                                                                                                                              • Channels to Market

                                                                                                                                • Key points
                                                                                                                                  • Consumers are more likely to turn to banks and building societies
                                                                                                                                    • Figure 39: Sources of secured lending, October 2007
                                                                                                                                  • Further advances, mainly a direct route…
                                                                                                                                    • Secured personal loans mainly a broker route
                                                                                                                                      • Brokers are important in the sub-prime segment
                                                                                                                                        • Figure 40: The percentage of adults sourcing secured loans from specialist lenders and brokers by socio-economic group and household income, October 2007
                                                                                                                                      • But brokers feel the heat just like the lenders
                                                                                                                                        • Downturn also leads to reduced business for aggregators
                                                                                                                                          • Moneysupermarket.com gets burnt
                                                                                                                                          • The Consumer – Secured Loan Ownership

                                                                                                                                            • Key points
                                                                                                                                              • Mintel’s consumer research
                                                                                                                                                • Unsecured loans: the poor relation?
                                                                                                                                                  • Figure 41: Credit ownership, October 2007 and November 2008
                                                                                                                                                • Not so sub-prime as many think
                                                                                                                                                  • Figure 42: Ownership of secured lending products, by socio-economic group and ACORN group, November 2008
                                                                                                                                                • Mortgage holders have higher overall levels of debt
                                                                                                                                                  • Figure 43: Ownership of secured lending products, by household income group and household ownership, November 2008
                                                                                                                                                • It’s a family thing
                                                                                                                                                  • Figure 44: Ownership of secured lending products, by age and lifestage, November 2008
                                                                                                                                                • The Scots like their credit secured
                                                                                                                                                  • Figure 45: Ownership of secured lending products, by region, November 2008
                                                                                                                                                • So that’s why FirstPlus advertised so much on cable and satellite TV
                                                                                                                                                  • Figure 46: Ownership of secured lending products by technology usage and newspaper readership, November 2008
                                                                                                                                              • The Consumer – Secured Lending as a Form of Credit

                                                                                                                                                • Key points
                                                                                                                                                  • Some 60% of adults have a least one credit product
                                                                                                                                                    • Figure 47: Repertoire analysis of ownership of credit products, November 2008
                                                                                                                                                  • Secured borrowers are relatively mature
                                                                                                                                                    • Figure 48: Use of credit products by gender, age and lifestage, November 2008
                                                                                                                                                  • Secured lenders are relatively affluent
                                                                                                                                                    • Figure 49: Use of credit products, by socio-economic group, ACORN group and home ownership, November 2007
                                                                                                                                                  • Implications and opportunities
                                                                                                                                                    • Net users are credit users
                                                                                                                                                      • Figure 50: The use of credit products, by technology usage and newspaper readership, November 2007
                                                                                                                                                    • Implications and opportunities
                                                                                                                                                    • The Consumer – Motivation

                                                                                                                                                      • Key points
                                                                                                                                                        • Cars and home improvement the main motivators for secured lending
                                                                                                                                                          • Figure 51: Reason for using secured credit products, October 2007 and November 2008
                                                                                                                                                        • Let’s look behind the data
                                                                                                                                                          • If the stereotype fits
                                                                                                                                                            • Figure 52: Reason for using secured credit products, by gender and age, November 2008
                                                                                                                                                          • Less affluent use secured loans for necessities
                                                                                                                                                            • Figure 53: Reason for using secured credit products, by socio-economic group and ACORN group November 2007
                                                                                                                                                        • The Consumer – Targeting Opportunities

                                                                                                                                                          • Key points
                                                                                                                                                            • Two fifths appear uncomfortable with secured lending
                                                                                                                                                                • Figure 54: Attitudes towards secured loans, November 2008
                                                                                                                                                              • But there are signs that resistance has weakened in the past year
                                                                                                                                                                • Figure 55: Changes in consumer attitudes towards secured loans, October 2007-November 2008
                                                                                                                                                              • Consumer clusters
                                                                                                                                                                • Figure 56: Secured borrowing clusters, November 2008
                                                                                                                                                              • Brand building and competitive rates cement the existing customer base
                                                                                                                                                                • Figure 57: Ownership of homeowner loan products, by cluster group, November 2008
                                                                                                                                                              • But building trust and dispelling uncertainty will grow the market.
                                                                                                                                                                • Figure 58: Ownership of secured loan products, by cluster group, November 2008
                                                                                                                                                              • Implications and opportunities
                                                                                                                                                                • Homeowners are the least comfortable with secured lending
                                                                                                                                                                  • Figure 59: Consumer clusters least likely to have a secured loan, by gender, age, lifestage and home ownership, November 2008
                                                                                                                                                                • Those with the most equity in their homes are the least comfortable
                                                                                                                                                                  • Figure 60: Clusters least likely to have a secured loan, by socio-economic group, household income, ACORN group and newspaper readership, November 2008
                                                                                                                                                                • Implications and opportunities
                                                                                                                                                                  • Play the interest rate and branding cards
                                                                                                                                                                    • Figure 61: Consumer clusters most likely to have a secured loan, by socio-economic group, household income, ACORN group and newspaper readership, November 2008
                                                                                                                                                                  • Competitive rates and strong brands appeals to family adults
                                                                                                                                                                    • Figure 62: Consumer clusters most likely to have a secured loan, by gender, age, lifestage and home ownership, November 2008
                                                                                                                                                                  • Implications and opportunities
                                                                                                                                                                      • Figure 63: Adults who think the internet would be the best way to find the best deal on a secured loan, by lifestage, socio-economic group and ACORN group, November 2008
                                                                                                                                                                    • Implications and opportunities

                                                                                                                                                                    Companies Covered

                                                                                                                                                                    • Abbey
                                                                                                                                                                    • Bank of England
                                                                                                                                                                    • Barclays Bank plc
                                                                                                                                                                    • BDS Secured Loans
                                                                                                                                                                    • Black Horse Ltd
                                                                                                                                                                    • Blemain Finance
                                                                                                                                                                    • British Bankers' Association (BBA)
                                                                                                                                                                    • British Sky Broadcasting Group plc (BSkyB)
                                                                                                                                                                    • Capital One Bank (Europe) plc
                                                                                                                                                                    • Central Capital
                                                                                                                                                                    • Chase Home Finance
                                                                                                                                                                    • CitiFinancial
                                                                                                                                                                    • Citigroup Private Bank
                                                                                                                                                                    • Citizens Advice Bureau
                                                                                                                                                                    • Colonial Secured Loans
                                                                                                                                                                    • Compass Finance
                                                                                                                                                                    • Competition Commission
                                                                                                                                                                    • Consumer Credit Counselling Service
                                                                                                                                                                    • Council of Mortgage Lenders
                                                                                                                                                                    • Dial4aloan.com
                                                                                                                                                                    • Egg plc
                                                                                                                                                                    • Ferrari S.p.A.
                                                                                                                                                                    • Financial Services Authority (The)
                                                                                                                                                                    • Firstplus Financial Group
                                                                                                                                                                    • Freedom Finance
                                                                                                                                                                    • Freeview
                                                                                                                                                                    • Future Mortgages
                                                                                                                                                                    • GE Consumer Finance
                                                                                                                                                                    • Gfk NOP
                                                                                                                                                                    • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                    • HFC Bank Ltd
                                                                                                                                                                    • Hfs Loans Ltd
                                                                                                                                                                    • HSBC Private Bank (UK) Limited
                                                                                                                                                                    • International Monetary Fund
                                                                                                                                                                    • Lloyds Banking Group
                                                                                                                                                                    • Loan Line Ltd
                                                                                                                                                                    • Market & Opinion Research International (MORI)
                                                                                                                                                                    • Merrill Lynch (UK)
                                                                                                                                                                    • MoneySupermarket.com Limited
                                                                                                                                                                    • Montres Rolex S.A.
                                                                                                                                                                    • National Pawnbrokers Association
                                                                                                                                                                    • Nationwide Building Society
                                                                                                                                                                    • Nemo Personal Finance
                                                                                                                                                                    • Northern Rock plc
                                                                                                                                                                    • Norton Finance
                                                                                                                                                                    • Ocean Finance
                                                                                                                                                                    • Office for National Statistics
                                                                                                                                                                    • Office of Fair Trading
                                                                                                                                                                    • Outdoor Advertising Association of Great Britain
                                                                                                                                                                    • Paragon Personal Finance Limited
                                                                                                                                                                    • Pensions Policy Institute
                                                                                                                                                                    • Picture Financial
                                                                                                                                                                    • Principality Building Society
                                                                                                                                                                    • Royal Bank of Scotland Group plc
                                                                                                                                                                    • Safe Home Income Plans (SHIP)
                                                                                                                                                                    • Shelter
                                                                                                                                                                    • The Loan Company
                                                                                                                                                                    • The Mortgage Lender (TML)
                                                                                                                                                                    • The Paragon Group of Companies PLC
                                                                                                                                                                    • The Royal Institution of Chartered Surveyors
                                                                                                                                                                    • West Bromwich Building Society
                                                                                                                                                                    • Woolwich plc

                                                                                                                                                                    Secured Lending Products - UK - January 2009

                                                                                                                                                                    £1,995.00 (Excl.Tax)