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Unsecured Personal Loans - UK - December 2009

Drawing on a range of information sources, including Mintel’s own consumer survey, this report will look at how lenders are adapting to the new pressures. The report includes a full appraisal of the issues and a five-year market size forecast.

  • The market has been hard-hit by the recession. New unsecured personal loan sales have halved in just two years.
  • Mintel forecasts another couple of tough years, but recovery should start to be seen in 2011.
  • Despite some bad press, around half of loan holders say that they are satisfied with the service they have received from their lender.
  • Mintel’s consumer research shows that there will be some 1.7 million potential ‘credit-extension’ borrowers and 880,000 people in the market for an unsecured loan during the course of the coming year.
  • Around one in ten existing loan holders have missed at least one repayment in the past, while around one in six admit that they are currently struggling to meet their borrowing commitments.
  • Despite the difficult economic climate, buying a car is still the main reason for taking out a personal loan - there's currently little sign of greater demand for debt consolidation products.

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Table of contents

  1. Issues in the Market

      • Mintel asks…
        • Market definitions
          • Abbreviations
          • Future Opportunities

            • Adjusting to the new economic realities
              • Support customers through the bad times
                • Build trust through open discourse
                  • Tap into customer wants through greater customisation
                  • Market in Brief

                    • Steep drop in new unsecured loan advances
                      • Most other related sectors are similarly faring poorly
                        • New business to remain flat in 2010
                          • As competitive pressures ease, loan rates increase
                            • Recent industry developments
                              • Branch-based sales still dominate, but the online channel is gaining ground
                                • Loan providers cut back on advertising to help control costs
                                  • Summary of loan purchasing trends
                                    • Around five million UK adults have an unsecured loan…
                                      • …many of whom sourced it from their current account provider
                                        • A significant minority are struggling to keep up with their repayments
                                          • New business potential
                                          • Internal Market Environment

                                            • Key points
                                              • A slimmer market post-crunch…
                                                • …raising competition fears
                                                  • Lending remains restricted despite measures to improve liquidity
                                                    • Margins increase as competitive pressures ease
                                                      • Figure 1: Average advertised rates versus actual interest rate on personal loans, three-month LIBOR and base rate, May 2007-October 2009
                                                    • OFT reviews high cost of consumer credit
                                                      • Competition Commission forced to review PPI ban
                                                        • PPI is the most complained about financial product
                                                          • Figure 2: Number of new complaints cases, by financial product or service, 2008 and 2009
                                                      • Broader Market Environment

                                                        • Key points
                                                          • Summary of the main macroeconomic indicators impacting on the consumer credit market
                                                            • Improving consumer sentiment could increase demand for credit
                                                              • Figure 3: GfK Consumer Confidence Barometer – UK, January 1988-October 2009
                                                            • Spending confidence starting to return
                                                              • Figure 4: Spending and savings confidence: March 2001-October 2009
                                                            • More moderate consumer spending growth going forward
                                                              • Figure 5: Total PDI, consumer expenditure and savings ratio, at current prices, 2004-13
                                                            • Household debt stabilises
                                                              • Figure 6: The value of personal sector debt (mortgages and consumer credit) and as a proportion of total PDI, at current prices, 2000-09
                                                            • Most consumer debt write-offs relate to unsecured lending
                                                              • Figure 7: Quarterly write-offs of lending to individuals, by sector, 2004-09
                                                          • Competitive Context

                                                            • Key points
                                                              • Rival products
                                                                • Increased demand for buy-now-pay-later deals
                                                                  • Pawnbrokers are thriving in the downturn
                                                                    • More people turning to loan sharks as legitimate credit sources dry up
                                                                      • New consumer credit lending declines by 13% in 2009…
                                                                        • Figure 8: Gross consumer credit lending, by type, 2004-09
                                                                        • Figure 9: Net consumer credit lending, 2004-08
                                                                      • …helping loan and credit card balances to shrink further
                                                                        • Figure 10: Amounts outstanding on personal loans, credit cards and overdrafts (MBBG only), 2004-09
                                                                      • Steep decline in housing equity withdrawal
                                                                        • Figure 11: Housing equity withdrawal, Q1 2004-Q2 2009
                                                                      • Contraction in the secured loan market is most acute
                                                                        • Figure 12: Value of new further advances and secured personal loans, 2004-09
                                                                    • Strengths and Weaknesses in the Market

                                                                        • Figure 13: Unsecured personal loans – summary of strengths, weaknesses, opportunities and threats, 2009
                                                                    • Who’s Innovating?

                                                                      • Key points
                                                                        • Regulatory controls and reduced competition restrict innovation
                                                                          • Most differentiation revolves around price
                                                                            • Best deals only available to existing customers
                                                                              • Rising popularity of payday loans
                                                                              • Market Size and Forecast

                                                                                • Key points
                                                                                  • Demand for unsecured loans continues to wane
                                                                                    • Figure 14: New gross unsecured loan advances – MBBG and total market, 2004-09
                                                                                  • The market is not expected to see significant improvement until 2011
                                                                                    • Figure 15: Forecast of gross lending on unsecured personal loans, 2004-14
                                                                                  • Factors incorporated
                                                                                  • Market Share

                                                                                    • Key points
                                                                                      • Market contracts…
                                                                                        • …but high street banks continue to lead the way
                                                                                            • Figure 16: Type of company obtained loan from, September 2009
                                                                                          • Lloyds TSB is the largest loan provider
                                                                                            • Figure 17: Estimated customer share of the unsecured personal loan market, by brand, September 2009
                                                                                          • Big five banking groups control nearly two thirds of the market
                                                                                            • Figure 18: Big five share of the unsecured personal loans market, September 2009
                                                                                          • RBS, Lloyds and Northern Rock to be broken up
                                                                                            • Alliance & Leicester punches above its weight
                                                                                              • Figure 19: Personal loan customer share versus current account customer share, September 2009
                                                                                          • Companies and Products

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

                                                                                                        • Key points
                                                                                                          • Loan providers cut adspend again in 2009
                                                                                                            • Figure 20: Total advertising expenditure on loan products, by type, 2005-09
                                                                                                          • Loan advertisers must adhere to a new social responsibility code
                                                                                                            • Direct mail accounts for the majority of loan adspend
                                                                                                              • Figure 21: Advertising expenditure on unsecured loans, by media type, 2007-09
                                                                                                            • High street brands top the list of loan advertisers
                                                                                                              • Figure 22: Top 15 advertisers of unsecured loan products, 2007-09
                                                                                                          • Channels to Market

                                                                                                            • Key points
                                                                                                              • More people turning to bank branches to source loans since the credit crunch
                                                                                                                • Figure 23: Method used for arranging loans, 2006-09
                                                                                                              • Motor and home insurance are the most frequently bought finance products online…
                                                                                                                • Figure 24: Financial products arranged or bought online within the past three months, 2007-09
                                                                                                              • …although loan applicants are increasingly turning to the web
                                                                                                                • Figure 25: Methods of sourcing and arranging loan by existing loan holders, September 2009
                                                                                                            • The Consumer – Ownership and Motivation

                                                                                                              • Key points
                                                                                                                • Loan penetration stabilises
                                                                                                                  • Figure 26: Personal loan ownership, 2008 and 2009
                                                                                                                • New loan holders account for a declining share of the overall customer base
                                                                                                                  • Figure 27: Length of time ago loan was taken out, 2008 and 2009
                                                                                                                • Loan terms of four to five years are the most common
                                                                                                                  • Figure 28: Length of loan term, 2009
                                                                                                                • Loan holders typically borrow between £4K and £15K
                                                                                                                  • Figure 29: Loan amount borrowed, 2009
                                                                                                                • The top reason people take out a loan is to buy a car
                                                                                                                  • Figure 30: Purpose of loan, 2008 and 2009
                                                                                                              • The Consumer – Identifying the Target Market

                                                                                                                • Key points
                                                                                                                  • About Mintel’s consumer survey
                                                                                                                    • One in seven internet users have an unsecured loan
                                                                                                                        • Figure 31: Financial products owned, September 2009
                                                                                                                      • The typical loan customer is a young, working mortgage holder
                                                                                                                      • The Consumer – Buying Behaviour and Attitudes Towards PPI

                                                                                                                        • Key points
                                                                                                                          • At least one in three customers obtained their loan from their current account provider
                                                                                                                              • Figure 32: Experience of arranging loans and PPI, September 2009
                                                                                                                            • One in seven used a web aggregator to source a loan
                                                                                                                              • Over a quarter refused PPI
                                                                                                                                • One in ten regret taking out their loan
                                                                                                                                  • Scope for web aggregators to improve targeting of women
                                                                                                                                    • Figure 33: Experience of arranging loans and PPI, by gender and age, September 2009
                                                                                                                                  • C2DEs are much more likely to take out PPI than ABC1s
                                                                                                                                    • Figure 34: Experience of arranging loans and PPI, by socio-economic group and gross annual household income, September 2009
                                                                                                                                  • Online applicants are less likely to take out PPI
                                                                                                                                    • Figure 35: Experience of arranging loans and PPI, by selected experiences, September 2009
                                                                                                                                • The Consumer – Repayment Experience

                                                                                                                                  • Key points
                                                                                                                                    • Around one in six loan holders are struggling with their repayments
                                                                                                                                        • Figure 36: Agreement with statements relating to customer satisfaction and repayment experience, September 2009
                                                                                                                                      • Those with multiple debts are more likely to default on their loan
                                                                                                                                        • Figure 37: Agreement with statements relating to customer satisfaction and repayment experience, by satisfaction and repayment experience, September 2009
                                                                                                                                      • Men pose more of a credit risk than women
                                                                                                                                        • Figure 38: Agreement with statements relating to customer satisfaction and repayment experience, by gender and age, September 2009
                                                                                                                                      • C2DEs also have an above-average tendency to default
                                                                                                                                        • Figure 39: Agreement with statements relating to customer satisfaction and repayment experience, by socio-economic group and gross annual household income, September 2009
                                                                                                                                    • The Consumer – Targeting Opportunities

                                                                                                                                      • Key points
                                                                                                                                        • There are 880,000 potential new loan customers
                                                                                                                                            • Figure 40: Financial plans and priorities, and concerns relating to loan acceptance, September 2009
                                                                                                                                          • Around one in 13 new loan targets have been turned down for credit in the past year
                                                                                                                                            • Figure 41: Financial plans and priorities, and concerns relating to loan acceptance, by potential targets, September 2009
                                                                                                                                          • Further analysis
                                                                                                                                          • Appendix – Loan and Credit Card Ownership by Demographics

                                                                                                                                              • Figure 42: Financial products or services in own name or jointly with a partner, by demographics, September 2009
                                                                                                                                          • Appendix – Demographic Profile of Unsecured Loan Customers

                                                                                                                                              • Figure 43: Profile of unsecured personal loan holders versus the total sample, by demographics, September 2009
                                                                                                                                          • Appendix – Financial Plans and Priorities by Key Demographics

                                                                                                                                              • Figure 44: Financial plans and priorities, and concerns relating to loan acceptance, by gender and socio-economic group, September 2009
                                                                                                                                              • Figure 45: Financial plans and priorities, and concerns relating to loan acceptance, by age, September 2009

                                                                                                                                          Companies Covered

                                                                                                                                          • Abbey
                                                                                                                                          • Advertising Standards Authority
                                                                                                                                          • Albemarle & Bond PLC
                                                                                                                                          • Alliance & Leicester
                                                                                                                                          • Allianz Group
                                                                                                                                          • American Express UK
                                                                                                                                          • Asda Group Ltd
                                                                                                                                          • Automobile Association (AA)
                                                                                                                                          • Bank of England
                                                                                                                                          • Barclaycard
                                                                                                                                          • Barclays Bank plc
                                                                                                                                          • Black Horse Ltd
                                                                                                                                          • Bradford & Bingley plc
                                                                                                                                          • Britannia Building Society
                                                                                                                                          • British Bankers' Association (BBA)
                                                                                                                                          • British Market Research Bureau (BMRB)
                                                                                                                                          • Capital One Bank (Europe) plc
                                                                                                                                          • Cheltenham & Gloucester plc
                                                                                                                                          • Cheshire Building Society
                                                                                                                                          • Churchill Insurance
                                                                                                                                          • Clydesdale Bank
                                                                                                                                          • Co-operative Group
                                                                                                                                          • Competition Commission
                                                                                                                                          • Council of Mortgage Lenders
                                                                                                                                          • Currys
                                                                                                                                          • Direct Line Group Limited
                                                                                                                                          • Dixons Retail Plc
                                                                                                                                          • Egg plc
                                                                                                                                          • Financial Ombudsman Service
                                                                                                                                          • Financial Services Authority (The)
                                                                                                                                          • First Direct
                                                                                                                                          • Firstplus Financial Group
                                                                                                                                          • Freedom Finance
                                                                                                                                          • Freeview
                                                                                                                                          • Gfk NOP
                                                                                                                                          • Green Flag Motoring Assistance
                                                                                                                                          • Grupo Santander Central Hispano S.A.
                                                                                                                                          • Harvey & Thompson Ltd
                                                                                                                                          • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                          • HFC Bank Ltd
                                                                                                                                          • HSBC Private Bank (UK) Limited
                                                                                                                                          • Intelligent Finance
                                                                                                                                          • J. Sainsbury
                                                                                                                                          • John Gilbert Financial Research
                                                                                                                                          • Kingfisher UK & Ireland
                                                                                                                                          • Lloyds Banking Group
                                                                                                                                          • Lloyds TSB Insurance
                                                                                                                                          • Lombard Direct
                                                                                                                                          • Market & Opinion Research International (MORI)
                                                                                                                                          • Marks & Spencer
                                                                                                                                          • MBNA Europe
                                                                                                                                          • MoneyExpert Ltd
                                                                                                                                          • Nationwide Building Society
                                                                                                                                          • NatWest
                                                                                                                                          • Nectar
                                                                                                                                          • Northern Rock plc
                                                                                                                                          • Office of Fair Trading
                                                                                                                                          • Picture Financial
                                                                                                                                          • Post Office Limited
                                                                                                                                          • Provident Financial plc
                                                                                                                                          • Royal Bank of Scotland Group plc
                                                                                                                                          • Sainsbury's Bank
                                                                                                                                          • Scarborough Building Society
                                                                                                                                          • Scottish Widows Bank plc
                                                                                                                                          • Smile
                                                                                                                                          • Tesco Personal Finance Limited
                                                                                                                                          • Tesco Plc
                                                                                                                                          • The Finance & Leasing Association
                                                                                                                                          • Virgin Group Ltd.
                                                                                                                                          • Virgin Money
                                                                                                                                          • Waitrose
                                                                                                                                          • Wm Morrison Supermarkets
                                                                                                                                          • Woolwich plc
                                                                                                                                          • Yes Loans Ltd
                                                                                                                                          • Yorkshire Bank PLC
                                                                                                                                          • Zopa Ltd

                                                                                                                                          Unsecured Personal Loans - UK - December 2009

                                                                                                                                          £1,995.00 (Excl.Tax)