Personal Loans - UK - December 2005

INTRODUCTION AND ABBREVIATIONS
Scope of the report
Market definitions
Other relevant reports
Key Sources
Global information and research
Consumer research
ACORN
 ABBREVIATIONS
PREMIER INSIGHT
Target switchers
Remove early redemption penalties
Sharing customer information is good PR
Greater price-transparency will increase competition
Debt consolidation to grow
Opportunities for debt management services
EXECUTIVE SUMMARY
Consumers cut back on spending…
…leading to reduced demand for credit
The size of the personal loans market
The big five banks control the largest share
Wide variance in loan APRs
Increasing loan sales via direct channels
Adspend curtailed
Product penetration
Key characteristics of the target audience
Buying behaviour and consumer preferences
Market outlook
MARKET FACTORS
 BORROWING BEHAVIOUR AND THE ECONOMIC ENVIRONMENT
Less appetite for borrowing in 2005
Figure 1: Total gross unsecured and secured lending, 2000-05
Greater focus on saving and debt management
Figure 2: Total PDI, consumer expenditure, savings and the savings ratio, at 2000 prices, 1995-2010
Are UK households over-indebted?
Net lending as a proportion of PDI falls in 2005
Figure 3: Net lending as a proportion of personal disposable income (non-seasonally adjusted), at current prices, 2000-05
Increasing individual insolvencies: a cause for concern?
Figure 4: Number of individual bankruptcy orders and IVAs (England and Wales), 1998-2004
The young are particularly vulnerable
Debt crisis: a change in circumstances is often the catalyst
Unemployment set to increase slightly
Figure 5: Size of the total workforce and the proportions unemployed and self-employmed, 2000-10
Loan payment protection insurance under fire
 CONSUMER MOTIVATIONS
To buy a car is the top reason for a loan
Figure 6: Main reasons for arranging (most recent) loan, October 2005
 REGULATORY DEVELOPMENTS
The 2003 White Paper recommendations
New early redemption penalty laws implemented
The Consumer Credit Bill introduced to Parliament
European Directive on Consumer Credit: still at the consultation stage
MARKET SIZE AND TRENDS
People are three times as likely to have an unsecured as a secured personal loan
Figure 7: Ownership of loan products, by type, 2004 and 2005
A note about student and graduate loans
Gross lending on unsecured personal loans dips slightly in 2005
Figure 8: Consumer credit gross lending, by product category, 2001-05
Secured personal loans experience significant fall in 2005
Figure 9: Other secured lending as a proportion of gross secured lending (approvals), 2001-05
The size of the personal loans market
Figure 10: Gross lending on unsecured and secured personal loans, 2001-05
KEY PLAYERS AND THE COMPETITIVE ENVIRONMENT
A diverse marketplace
Figure 11: Approximate composition of the unsecured and secured personal lending markets, 2005
Figure 12: Top six major British banking groups and their (selected) subsidiaries, 2005
The largest loan providers
Figure 13: Company obtained personal loan from, by loan type, October 2005
Lloyds TSB is number one in the unsecured loan market...
Alliance & Leicester and Northern Rock punch above their weight
Figure 14: Top nine unsecured personal loan providers, by proportion of current account and loan customers, 2005
...while HBOS is way out in front in the secured sector
Figure 15: Top five secured personal loan providers, by proportion of loan customers and share of gross mortgage lending, 2004 and 2005
New entrants still emerging
Product differentiation
Figure 16: Repayment terms for selected unsecured loans of £3,000 over 36 months, by APR, October 2005
The gap between advertised and actual rates
Figure 17: Advertised personal loan rate and actual mean rates paid, February 2005-June 2005
Flexible features
Industry innovation: the two-in-one card
DISTRIBUTION AND THE INTERNET
Direct channels are gaining distribution share
Figure 18: Channel used to arrange (most recent) loan, by type of loan and borrower. September 2004
Around three in five adults use the Internet
Figure 19: British Internet penetration and profile of users versus total population profile, by gender, age, socio-economic group and working status, August 2005
A niche but steadily growing market for online loan sales
Figure 20: Websites browsed and purchased from, by type of financial product, 2002-05
ADVERTISING AND PROMOTION
Adspend on personal loans down in 2005
Figure 21: Total advertising expenditure on personal loans, by product type, 2001-05
Direct mail accounts for over half of total adspend
Figure 22: Total advertising expenditure on personal loans, by media type, 2000/01-2004/05
Direct operators and brokers tend to invest the most
Figure 23: Top 20 advertisers of personal loans, 2004 and 2005
CONSUMER FINANCIAL ACTIVITY
About the Financial Activity Bulletin
Confidence at a low ebb
Figure 24: The five measures comprising the consumer confidence index, Q3 2003-Q3 2005
Increasing uncertainty suppresses borrowing intentions
Figure 25: Savings, investment, borrowing and debt repayment – consumers’ expected activity, June 2004-September 2005
Younger and less affluent consumers are set to be more active
Figure 26: Expected financial activity, by socio-demographic and income groups, September 2005 and average for the last 15 quarters
Debt repayment is high on the agenda
Figure 27: Leading financial activities planned in the next six months, September 2004-September 2005
The property market begins to look more promising
Figure 28: Intended mortgage and property purchase activity, September 2003-September 2005
Little year-on-year change in main provider shares
Figure 29: Leading main financial services providers: market shares, September 2004-September 2005
RBS should benefit from increased loans business
Figure 30: Saving, investment and lending market sizes, by expected customer demand and brand leaders, September 2005
The Scottish banks will have the most active customer base
Figure 31: Activity levels of MFSPs’ customer bases, September 2005
Lloyds TSB and HSBC have both high proportions of intended borrowers and debt repayers
Figure 32: Activity intentions and current household financial situation, by MFSP, September 2005
THE CONSUMER AND PRODUCT OWNERSHIP
Credit cards and bank overdrafts are the most popular sources of credit
Figure 33: Proportion of adults owing money on lending products, by order of signficance, October 2005
25-34-year-olds are twice as likely as the population average to have an unsecured loan
Figure 34: Proportion of adults owing money on lending products, by gender, age, socio-economic group and working status, October 2005
70% of cohabiting couples have non-mortgage debts
Figure 35: Proportion of adults owing money on lending products, by marital status, lifestage and Mintel’s Special Groups, October 2005
One in 14 mortgage holders have a secured loan
Figure 36: Proportion of adults owing money on lending products, by tenure, car ownership, gross annual household income, region and ACORN category, October 2005
TV offers a good way of reaching potential targets
Figure 37: Proportion of adults owing money on lending products, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, October 2005
Unsecured loan holders have a younger age profile
Figure 38: Profile of loan holders, by type, by gender, age, socio-economic group, Mintel’s Special groups and tenure, October 2005
Most borrowers seek the security of one of the big five banks
Figure 39: Type of company obtained loan from, by loan type, October 2005
Half of ‘non-high street bank’ loan customers are under 35
Figure 40: Profile of the customer bases of high street banks and other loan providers, by gender, age and socio-economic group, October 2005
Secured loan holders are more likely to have shopped around
Figure 41: Proportion of loan holders who agree with statements concerning the buying process, by loan type, October 2005
Lack of APR awareness
Men and the middle-aged more likely to shop around
Figure 42: Proportion of loan holders who agree with statements concerning the buying process, by gender and age, October 2005
Internet users are more likely to decline PPI
Figure 43: Proportion of loan holders who agree with statements concerning the buying process, by socio-economic group, mortgage holders and Internet users, October 2005
Customers of the big five banks are least likely to shop around...
Figure 44: Company obtained loan from, by those who were already a customer and those who shopped around, October 2005
...and least likely to use direct distribution channels
Figure 45: Proportion of loan holders who agree with statements concerning the buying process, by where account held, October 2005
Further analysis
CONSUMER ATTITUDES AND TARGETING OPPORTUNITIES
CHAID analysis
Figure 46: Target groups identified for personal lending market, October 2005
A tenth of unsecured personal loan holders also have a secured loan
Figure 47: Proportion of adults owing money on lending products, by lending product, October 2005
Just over one in 12 adults owe money on three or more types of credit
Figure 48: Number of lending product types owned, October 2005
Figure 49: Proportion of adults owing money on lending products, by number of types owned, October 2005
Wealthier sections of society are more likely to have multiple debts
Figure 50: Number of lending product types owned, by gender, age, socio-economic group, working status, tenure and household income, October 2005
Secured loan holders much more likely to have savings and investments
Figure 51: Ownership of savings and investment products, by total sample, all borrowers and loan holders, October 2005
Debts versus savings
Figure 52: Population segmentation, according to possession of debts and savings, October 2005
Older consumers more likely to have savings than debts
Figure 53: Population segmentation, according to possession of debts and savings, by gender, age, socio-economic group, working status, tenure and household income, October 2005
C2s and 25-34-year-olds tend to be in the most vulnerable positions
Figure 54: Profile of four consumer groups, based on ownership of debts and savings, by gender, age, socio-economic group, working status, tenure and household income, October 2005
One in 20 adults owe more than £10,000 in non-mortgage debts
Figure 55: Amount of debt outstanding (excluding mortage debt), by total sample and loan holders, October 2005
The most indebted favour credit cards and unsecured loans
Figure 56: Proportion of adults owing money on lending products, by type and amount of non-mortgage debt, October 2005
The more products held, the greater the debt
Figure 57: Amount of debt outstanding (excluding mortage debt), by number of lending products held, October 2005
The wealthier sections of society tend to have the highest debts
Figure 58: Amount of debt outstanding (excluding mortage debt), by gender, age, socio-economic group, working status, tenure and household income, October 2005
One in four adults say they are unlikely to ever need a loan
Figure 59: Agreement with statements relating to debt and credit, by total sample and loan holders, October 2005
Loan holders are generally confident of managing their debt
One in five secured loan holders later regretted taking out their loan
Cluster analysis
Figure 60: Personal lending clusters, October 2005
Repentant Borrowers represent the key target market for debt consolidation...
Figure 61: Agreement with statements, by personal lending clusters, October 2005
...as 44% of them are making use of at least two lending products
Figure 62: Proportion of adults using lending products, by personal lending clusters, October 2005
Credit-Averse consumers are least indebted
Figure 63: Amount of debt outstanding (excluding mortage debt), by personal lending clusters, October 2005
Three in four Repentant Borrowers are aged under 45
Figure 64: Profile of the personal lending clusters, by gender, age, socio-economic group, working status, tenure and household income, October 2005
INDUSTRY VIEWS
Providers reinforce bad debt provisions...
...but better data sharing is needed
Extending the summary box idea to personal loans
THE FUTURE
Weakened consumer confidence
A ray of light in the housing market?
Implications for the unsecured lending market
Demand for debt consolidation to grow
More stringent lending criteria...
...and greater data sharing
Consumer credit industry awaits new Act
Providers may shift strategy
FORECAST
Steady as she goes
Figure 65: Forecast of gross lending on unsecured and secured personal loans, at current and constant prices, 2005-10
Factors incorporated