Table of Contents
Executive Summary
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- The market
- COVID-19 crisis has made consumers more cautious about debt
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- Figure 1: Forecast of gross consumer credit lending (adjusted for COVID-19), 2015-25
- Secured lending will dip in 2020 before recovering in 2021
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- Figure 2: Forecast of gross mortgage lending (adjusted for COVID-19), 2015-25
- New rules lead to a spike in the cost of overdrafts
- Government interventions protect finances…for now
- Unemployment is set to more than double during 2020
- COVID-19 and Brexit may shift regulatory priorities
- The impact of COVID-19
- Short-, medium- and long-term impact on the industry
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- Figure 3: Expected impact of COVID-19 on Consumer credit, short-, medium- and long-term, 21 July 2020
- Short term:
- Medium term:
- Long-term:
- The consumer
- Credit cards are the most common form of debt
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- Figure 4: Types of credit owned, May 2020
- Older Millennials are most indebted
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- Figure 5: Amount of unsecured credit held, May 2020
- A third reduced their debts in the past two years
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- Figure 6: Changes in the amount of unsecured debt, June 2019/May 2020
- Consumers are focussed on reducing debt
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- Figure 7: Debt intentions, June 2019/May 2020
- Consumers are less comfortable with their debt
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- Figure 8: Comfort with current level of debt, June 2019/May 2020
- One in seven has put off making a large purchase on credit
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- Figure 9: Actions taken in response to COVID-19, May 2020
- Most people trust themselves to use credit responsibly
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- Figure 10: Experiences of debt, May 2020
- Over half think lenders can be a force for good
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- Figure 11: Attitudes towards debt, May 2020
- What we think
The Impact of COVID-19 on Consumer Attitudes Towards Debt
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- Opportunities and Threats
- Lockdown advertising resonates with worried consumers
- An expectation of increasing costs could drive more people to restructure debt
- Growth in online shopping will affect the type of credit used
- Older Millennials’ attitudes towards debt has been shaken
- How COVID-19 will reshape the market
- What we saw in the last recession
- What will happen this time
- The impact of COVID-19 on Consumers
- Young people are hardest hit by the lockdown
- Fear of job losses will prove an obstacle to new credit
- Fears about house prices could be a self-fulfilling prophecy
- Even affluent households are putting off large purchases on credit
- Repayment holidays are borrowing from future spending
Issues and Insights
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- Lenders will face a PR challenge as debt holidays come to an end
- The facts
- The implications
- COVID-19 could prove a tipping point in how Older Millennials view debt
- The facts
- The implications
- A holistic and supportive approach to lending will appeal to Generation Z
- The facts
- The implications
The Market – What You Need to Know
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- Unsecured lending drops but growth will return
- Secured lending will dip in 2020 before recovering in 2021
- New rules lead to a spike in the cost of overdrafts
- Government interventions protect finances…for now
- Unemployment is set to more than double during 2020…
- COVID-19 and Brexit may shift regulatory priorities
- Lockdown solidarity resonates with consumers
Unsecured Debt – Market Context
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- Outstanding debt falls even as repayments slow
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- Figure 12: Monthly amounts outstanding of total (excluding Student Loans) sterling net unsecured lending to individuals, January 2010-April 2020
- Consumers were repaying credit card debt prior to COVID-19
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- Figure 13: Consumer credit flows, January 2017-April 2020
- Credit cards have experienced a steady decline
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- Figure 14: Segmentation of outstanding consumer credit, 2015-20
- Consumer credit dented by falling appetite for big-ticket purchases
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- Figure 15: Forecast of gross consumer credit lending (adjusted for COVID-19), 2015-25
Secured Debt – Market Context
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- Gross mortgage lending falls slightly in 2019
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- Figure 16: Gross mortgage lending, not seasonally adjusted, 2005-19
- Approvals collapsed in April
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- Figure 17: Number of approvals for lending to individuals, not seasonally adjusted, January 2019-Apr 2020
- Mortgage lending forecast to contract by a fifth
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- Figure 18: Forecast of gross mortgage lending (adjusted for COVID-19), 2015-25
Cost of Debt
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- New rules lead to a spike in the cost of overdrafts
- Cost of loans has fallen as credit cards become more expensive
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- Figure 19: UK interest rates on unsecured credit products, January 2010-May 2020
- Competition drives down the cost of fixed rate mortgages
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- Figure 20: Quoted household mortgage rates, January 2017-May 2020
- COVID-19 makes it more expensive for first-time buyers
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- Figure 21: Average cost of 2 year fixed rate mortgages, by LTV ratio, January 2017-May 2020
Consumer Context
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- Government interventions protect many households for now…
- …but people have noticed a change
- Future confidence has tumbled
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- Figure 22: The financial well-being index, January 2017-June 2020
- Fears of job losses will have a negative impact on the market
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- Figure 23: Expected impact of COVID-19 on the UK economy, 11-18 June 2020
- Consumers think house prices will take a hit
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- Figure 24: Expected impact of COVID-19 on the UK economy, 11-18 June 2020
- 30% have put off major purchases
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- Figure 25: Financial impact of COVID-19, 21 - 28 May 2020
Economic Outlook
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- Economy will return to pre-crisis size by late 2021
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- Figure 26: Annual GDP, 2007-24 (central forecast)
- Unemployment is set to more than double during 2020…
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- Figure 27: Annual unemployment rate, 2007-24
- Housing transactions decline for three years running
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- Figure 28: Annual change in residential housing transactions over £40,000 (non-seasonally adjusted, calendar year), 2008-19
- New and used car sales continue to decline
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- Figure 29: New and used car market volumes, 2014-19
Write-offs, Repossessions and Insolvencies
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- Value of write-offs rises for two years running
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- Figure 30: Value of write-offs to individuals, 2010-19
- Mortgage arrears at historically low levels going into COVID-19
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- Figure 31: Quarterly mortgage arrears (at least 2.5%) and repossessions, Q1 2017-Q1 2020
- Insecure employment behind a steady rise in IVAs
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- Figure 32: Number of individual insolvencies, 2010-19
Regulatory and Legislative Changes
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- COVID-19 may shift regulatory priorities
- FCA implements support for those struggling because of coronavirus
- Stamp duty relief implemented to boost housing sector
- Government provides additional funding for debt advice
- Ban on gambling by credit card
- Fall in complaints about credit products as PPI deadline passes
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- Figure 33: New cases to the Financial Ombudsman Service, by industry, 2018/19-2019/20
- Fines for overcharging mortgage customers
Advertising and Marketing Activity
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- Halifax takes over as the biggest spender on advertising
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- Figure 34: Advertising expenditure, by advertiser, 2019/20
- Competitive mortgage market drives adspend
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- Figure 35: Advertising expenditure on credit and loan products, by product segmentation, 2015/16-2019/20
- Support is a key theme for credit card advertising
- Using Katherine Ryan to explain Section 75
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- Figure 36: Barclaycard - Holiday Essentials, July 2019
- Educating consumers to prepare for the future
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- Figure 37: Barclaycard app, June 2020
- New credit propositions focus on identity and placement
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- Figure 38: Klarna retailer partnership advertising, September 2019
- Where next
- Flexibility and understanding will be key in a recession
- Supporting savvy shoppers
- Enabling consumers in the shift to the ‘next normal’
- Credit for the Green Recovery
The Consumer – What You Need to Know
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- Credit cards are the most common form of debt
- Older Millennials are most indebted
- A third reduced their debts in the past two years
- Consumers are focussed on reducing debt
- Consumers have become less comfortable with their debts
- One in seven has put off making a large purchase on credit
- Most people trust themselves to use credit responsibly
- Over half think lenders can be a force for good
Types of Credit Held
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- Credit cards are the most common form of debt
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- Figure 39: Types of credit owned, May 2020
- Credit card use among low income households grows
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- Figure 40: Holders of credit card debt, by household income, June 2019/May 2020
- Credit card use among young people may have peaked
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- Figure 41: 18-24 year olds with credit card debt, May 2015-May 2020
- A third of Older Millennials have three or more debt products
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- Figure 42: Repertoire analysis of debt products, by generation, May 2020
Value of Unsecured Debt
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- Older Millennials are most indebted
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- Figure 43: Amount of unsecured credit held, by generation, May 2020
- Debt has become increasingly focussed on the young
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- Figure 44: Average unsecured debt, by age group, May 2014-May 2020
Changes in Debt Situation
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- A third reduced their debts
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- Figure 45: Changes in the amount of unsecured debt, June 2019/May 2020
- 45-54 year olds are most likely to have reduced their debt
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- Figure 46: Changes in the amount of unsecured debt, by age group, May 2020
Debt Intentions
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- Consumers are focussed on reducing debt
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- Figure 47: Debt intentions, June 2019/May 2020
- Men are more optimistic about clearing debt
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- Figure 48: Debt intentions, by age group, May 2020
Comfort with Level of Debt
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- People are less comfortable about debt
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- Figure 49: Comfort with current level of debt, June 2019/May 2020
- Older Millennials feeling increasingly uncomfortable
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- Figure 50: Net – Any uncomfortable with current level of debt, by generation, June 2019/May 2020
- Londoners are most uncomfortable with their debt
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- Figure 51: Comfort with current level of debt, net - any uncomfortable, by region, May 2020
Impact of COVID-19 on Credit and Debt
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- One in seven has put off making a large purchase on credit
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- Figure 52: Actions taken in response to COVID-19, May 2020
- 15% of mortgage holders applied for a repayment holiday
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- Figure 53: Actions in response to COVID-19, rebased, May 2020
- Gen Z are most reliant on government support
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- Figure 54: Actions taken in response to COVID-19, by generation, May 2020
- Self-employed and temporary workers fall through the gaps
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- Figure 55: “Taken on additional debts”, by employment status, May 2020
Experiences of Debt
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- Most people trust themselves to use credit responsibly
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- Figure 56: Experiences of debt, May 2020
- City-dwelling parents are most concerned about COVID-19
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- Figure 57: Consumer Attitudes Towards Debt – CHAID – Tree output, May 2020
- Gen Z are fearful of impacting their credit rating
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- Figure 58: “Fear of being turned down puts me off applying for new credit products”, by generation, May 2020
- A third of men under 35 have missed a repayment
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- Figure 59: “I've missed at least one repayment on a mortgage, loan or credit card in the past 3 years”, by age and gender, May 2020
Attitudes Towards Debt
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- Most expect the cost of debt to increase
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- Figure 60: Attitudes towards debt, May 2020
- An opportunity for lenders to be a force for good
- Young people are most positive about lenders
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- Figure 61: Attitudes towards Debt, by generation, May 2020
- A reluctance to talk harms relationships and credit ratings
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- Figure 62: Agreement with the statement “It's embarrassing to talk to friends/family about debt”, by experience of debt, May 2020
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Nielsen Ad Intel coverage
- Consumer research methodology
- CHAID analysis
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- Figure 63: Consumer Attitudes Towards Debt – CHAID – Table output, May 2020
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- Figure 64: Consumer Attitudes Towards Debt – CHAID – Table output, May 2020
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