What you need to know

COVID-19 has produced an unprecedented shock to household finances. Lockdown has severely reduced consumer spending and this has resulted in a massive drop in outstanding consumer credit. While some of this will return as lockdown eases, the looming unemployment crisis will further impact both the secured and unsecured lending sectors.

The speed and scale of the impact of COVID-19 has shocked consumers who had become used to using cheap credit to fund their lifestyles. Older Millennials were most heavily reliant on debt going into this crisis and are among the groups most impacted by the lockdown. As a result, they have become far more uncomfortable about how much they owe as the crisis has revealed the fragility of their finances. As a result, we may see this generation adopt a more cautious approach to credit moving forward, requiring lenders to focus on appealing to a younger generation of borrowers with different expectations of lenders.

The consumer credit market will play a crucial role in the economic recovery. Unlike the financial crisis and subsequent recession, consumers don’t blame the banks for this crisis, which means there is a real opportunity to build trust and dialogue with consumers. Getting the messaging right now will lay the groundwork for appealing to a new generation of borrowers who care deeply about brands that have an impact and align with their personal values.

Key issues covered in this Report

  • The impact of COVID-19 on consumer attitudes towards debt and credit.

  • How the economic crisis associated with COVID-19 will change consumers’ priorities when it comes to secured and unsecured debt and credit products.

  • Value of unsecured debt held and level of comfort with current level of debt.

  • Consumer experiences of debt, intentions relating to debt and general attitudes towards borrowing.

Products covered in this Report

The focus of this Report is consumer attitudes towards debt and credit products. The Report takes a more general view of how consumers feel about debt and how this impacts their decisions around taking out new debt and accessing new debt products. While specific debt products are referenced in this Report, the individual markets are examined in more detail in the following Reports:

For more information, see the following Mintel Reports:

For more on the impact of COVID-19 on the financial services sector see:

This Report examines both secured and unsecured lending, although unsecured debt is the focus for the majority of the consumer research. For the purposes of the Report, these two types of credit are defined as follows:

  • 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.

COVID-19: Market context

This update on the impact that COVID-19 is having on the market was prepared on 21 July 2020.

The first COVID-19 cases were confirmed in the UK at the end of January, with a small number of cases in February. The government focused on the ‘contain’ stage of its strategy, with the country continuing to operate much as normal. As the case level rose, the government ordered the closure of non-essential stores on 20 March.

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. Initially, a three-week timeframe was put on the measures, which was extended in mid-April for another three weeks.

From 10 May 2020, the government started to ease the lockdown in a phased approach. From 15 June all non-essential retailers were allowed to reopen. Hospitality businesses and other public places started to reopen from 4 July.

Economic assumptions

Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its July 2020 Fiscal Sustainability Report. The scenario suggests that UK GDP could fall by 12.4% in 2020, recovering by 8.7% in 2021, and that unemployment will reach 11.9% by the end of the year, and 8.8% by the end of 2021. The current uncertainty means that there is wide variation on the range of forecasts however, something reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q1 2021. Its more negative scenario, by contrast, would mean that GDP doesn’t recover until Q3 2024.

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