The cost of living crisis has increased reliance on unsecured credit. Although 65% of unsecured credit holders say the cost of living crisis has made them focus on debt reduction, only 20% of Brits actually reduced non-mortgage debts in the three months to August or planned to do so in the next three months. This reflects that while debt reduction is a priority, immediate financial flexibility is more pressing for many consumers.
The main threat to current and future use of unsecured credit is the high cost of borrowing compared to pre-2022 levels. With rates much higher than consumers have been used to for most of the last decade and a half, and many households in a cautious, recovery mindset, medium- to longer-term structured credit products such as personal loans are particularly at risk.
Engaging with younger consumers represents a key opportunity. Younger groups are more inclined to use BNPL services, and are more likely to be exposed to credit offers on social media. By leveraging digital marketing through social media, aligning with FCA guidelines, BNPL and traditional credit providers can better engage with the next generation of borrowers.
This report looks at the following areas:
- The impact of the cost of living crisis and subsequent rise in interest rates on consumer borrowing in both unsecured and secured debt markets.
- Current consumer credit use and preferences, and how the rise of Buy Now, Pay Later is challenging traditional lenders to innovate, presenting opportunities for new hybrid products.
- Understand consumer attitudes towards debt and credit, including how issues such as improving understanding of credit scores are key to supporting vulnerable credit applicants.
- Stay informed about the latest developments in innovation and marketing trends.
Credit use has increased during the cost of living crisis. Lenders have supported vulnerable customers but can further improve understanding and engagement.
Saltanat Kuermannal, Financial Services Analyst
Market Definitions
For the purposes of this Report, Mintel has used the following definitions:
Secured lending – lending that is secured against a property, ie the ownership of the property is at risk if repayments are not made to clear the debt. This is primarily mortgages used to purchase properties, but also includes homeowner loans where homeowners borrow additional funds secured against their home.
Unsecured lending – any type of lending that does not fit the definition of secured lending, ie lending that is not secured against a property. This includes a wide range of consumer credit products such as credit cards, personal loans, instant digital credit and current account overdraft facilities. Please note that this definition also includes car finance plans which can be secured against the vehicle being purchased.
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Executive Summary
- Opportunities for the credit market
- Enhance consumer experience with innovative hybrid credit products
- Harness social media to capture younger adults’ BNPL preference
- Enhance financial education and pre-approval tools
- Market dynamics and outlook
- The lingering effects of the cost of living crisis continue to drive demand for credit
- Graph 1: gross consumer credit lending (excluding student loans), 2016-24
- Total consumer credit lending set to reach £380 billion in 2024
- Net lending is expected to remain high throughout 2024
- Graph 2: monthly changes of total (excluding student loans) net consumer credit lending, 2016-24
- What consumers want and why
- Credit cards continue to be the most common form of personal debt
- Most unsecured credit customers owe less than £5,000
- Approximately a third plan to take on new or additional unsecured credit next year
- Low interest rates lead the way when choosing a borrowing product…
- …but rising costs have hit satisfaction with interest rates
- Graph 3: satisfaction with money owed on unsecured credit products – NET, 2024
- Providers should be proactive in assisting borrowers to reduce debt levels
- Graph 4: behaviours towards debt and credit, 2024
- Innovation and marketing
- Advertising spend on credit and loan products drops further in 2023/24…
- Graph 5: grand total above-the-line, online display and direct mail advertising on credit and loan products, 2019/20-23/24
- Barclaycard highlights interest-free period in latest Platinum card TV ad campaign
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Market Dynamics
- Unsecured debt market
- The lingering effects of the cost of living crisis continue to drive demand for credit
- Graph 6: gross consumer credit lending (excluding student loans), 2016-24
- Total consumer credit lending set to reach £380 billion in 2024
- Gross credit card lending continues to reach new highs after the pandemic drop-off
- Graph 7: gross credit card lending (not seasonally adjusted) 2019-24
- Consumers continue to have a greater reliance on credit cards
- Other consumer credit is also expected to grow steadily
- Graph 8: gross other consumer credit lending (excluding credit cards), 2016-24
- Net lending is expected to remain high throughout 2024
- Graph 9: monthly changes of total (excluding student loans) net consumer credit lending, 2016-24
- Household debts are on the rise, surpassing levels observed before COVID-19
- Graph 10: monthly amounts outstanding unsecured debts (excluding student loans), 2016-24
- Secured debt market
- Mortgage lending plummeted in 2023 and is expected to stay low in 2024
- Graph 11: gross mortgage lending, 2016-24
- Despite the Bank of England’s first rate cut in four years, borrowing pressure remains
- Cost of living crisis to continue constraining house purchasing in 2024
- Graph 12: montly gross mortgage lending, by purpose, 2020-24
- Cost of debt
- The elevated base rate has driven up credit card rates
- Graph 13: interest rates on unsecured credit products, 2020-24
- Overdraft rates have almost doubled since the High Cost Credit Review
- Mortgage rates, previously on the rise, have begun to fall
- Graph 14: interest rates for selected types of mortgages, 2020-24
- Mortgage rate dip eases pressure on homeowners, but affordability challenges persist
- Write-offs, bankruptcies and insolvencies
- Despite the cost of living crisis, debt write-offs have gradually declined since 2020
- Graph 15: value of write-offs to individuals, 2011-23
- Support measures and enhanced debt management strategies curb credit write-offs during cost-of-living crisis
- Bankruptcies continued to fall in 2022
- Graph 16: number of individual insolvencies, 2013-22
- Debt relief orders increased in the first half of 2023 compared to the previous year, accompanied by a decline in IVAs
- Graph 17: number of individual insolvencies, 2022-23 (quarterly)
- Macro-economic factors
- CPI inflation is still a concern for consumers
- Graph 18: CPI inflation rates, 2021-23
- Consumer sentiment remains fragile
- Graph 19: financial wellbeing index, 2020-24
- Graph 20: financial confidence index, 2020-24
- While debt reduction is a priority, immediate financial flexibility is more pressing
- Regulatory and legislative changes
- FCA calls for input in post-Consumer Duty review
- Reforms still expected to Consumer Credit Act despite change of government
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What Consumers Want and Why
- Types of credit held
- Most consumers have some form of debt
- Graph 21: types of credit owned – NET, 2024
- Credit cards continue to be the most common form of personal debt…
- Graph 22: types of credit owned, 2024
- …enjoying greater popularity among higher earners
- Graph 23: types of credit owned, by household income, 2024
- Younger groups are more likely to have outstanding unsecured debts
- Total level of unsecured debt
- Most unsecured credit customers owe less than £5,000
- Graph 24: total level of unsecured debt – NET, 2023-24
- Higher earners are more likely to take on larger debts
- Graph 25: total level of unsecured debt – NET, by household income, 2024
- Ensure support for vulnerable borrowers is robust and clearly signposted
- Most recently incurred debt and future lending intentions
- Over half of unsecured credit borrowers most recently took out a credit card…
- Graph 26: types of most recently taken out unsecured credit products (excluding student loan(s)), 2024
- …and a third plan to take on new or additional unsecured credit next year
- Graph 27: unsecured lending intentions in the next 12 months, 2024
- Graph 28: unsecured lending intentions in the next 12 months – NET, 2024
- Tapping into the BNPL wave with tailored marketing strategies
- Graph 29: future unsecured lending intentions, by age, 2024
- Enhance consumer experience with innovative hybrid credit products
- Factors influencing the choice of unsecured credit products
- Low interest rates lead the way when choosing a borrowing product
- Graph 30: important factors in choosing a borrowing product, 2024
- Flexibility in repayment dates can greatly motivate existing or prospective lenders to choose one borrowing product over another
- Borrowers are driven by getting the right sized loan in a convenient manner
- Recommendations from friends or family are most important for younger borrowers
- Satisfaction with unsecured credit products
- Borrowers are generally satisfied with their credit products…
- Graph 31: satisfaction with money owed on unsecured credit products – NET, 2024
- …but rate rises have made interest rates a notable point of contention
- Graph 32: satisfaction with interest rates, by age, 2024
- Help younger borrowers with simple communications
- Address the mismatch between expectations and experiences through enhanced digital offerings
- Graph 33: any dissatisfaction with digital tools*, by age, 2024
- Satisfaction with flexibility and quality of customer service is lower among vulnerable borrowers
- Graph 34: any satisfaction with most recent unsecured credit product, by financial situation, 2024
- Attitudes towards debt and credit
- Providers should be proactive in assisting borrowers to reduce debt levels
- Graph 35: attitudes towards debt and credit, 2024
- Empower younger borrowers with tailored digital debt management guidance
- Graph 36: “I would be interested in managing my debts with the help of an online guidance service*”, by age, 2024
- Harness social media to appeal to young adults
- Graph 37: agreement with attitudes towards debt and credit, by age, 2024
- Enhance financial education and pre-approval tools
- Graph 38: agreement with attitudes towards debt and credit, by financial situation, 2024
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Innovation And Marketing Trends
- Competitive strategies and launch activity
- NatWest shifts strategies with BNPL service closure, mortgage acquisition, and new travel reward credit card launch
- Amazon partners with Barclays to re-enter the credit card market
- ClearScore launches a new debt consolidation loan tech “Clearer”
- Nottingham Building Society partners with Nova Credit to expand mortgage range
- Advertising and marketing activity
- Advertising spend on credit and loan products drops further in 2023/24…
- Graph 39: grand total above-the-line, online display and direct mail advertising on credit and loan products, 2019/20-23/24
- …with the greatest decline in mortgages
- Graph 40: total above-the-line, online display and direct mail advertising on credit and loan products, 2019/20-23/24
- American Express Europe leads the way after significant advertising investment in the last year
- Graph 41: top 10 advertisers of above-the-line, online display and direct mail advertising of credit and loan products, 2023/24
- Barclaycard highlights interest-free period in latest Platinum card TV ad campaign
- Ocean credit card TV ad focused on pre-approval
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Appendix
- Report scope and definitions
- Report scope
- Market definition
- Abbreviations and terms
- Methodology
- Consumer research methodology
- TURF analysis – methodology data
- Nielsen Ad Intel coverage
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