Table of Contents
Overview
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- What you need to know
- Definitions
Executive Summary
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- The market
- Unsecured lending continues to grow
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- Figure 1: Gross unsecured lending, 2012-16
- Insolvencies rise for the first time…
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- Figure 2: Individual insolvencies in England and Wales, by type, 2011-16 (not seasonally adjusted)
- Brexit will put a dampener on positive employment conditions
- The Open Banking Standard will help to address financial exclusion
- Use of alternative data will reduce financial exclusion
- The consumer
- Over half of the population could face difficulty accessing the credit they want
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- Figure 3: Factors affecting access to credit, October 2016
- Two thirds of UK adults owe money on a loan or credit product
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- Figure 4: Loan and credit product ownership, October 2016
- Majority are confident about accessing credit
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- Figure 5: Confidence in being accepted for credit or a loan, October 2016
- Most credit users have their borrowing under control
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- Figure 6: Amount owed on all loan and credit products, October 2016
- Credit use concerns mean people try to repay as quickly as possible
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- Figure 7: Attitudes towards borrowing, October 2016
- Majority never check their credit score
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- Figure 8: Credit score checking behaviour, October 2016
- Over a third are currently trying to improve their score
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- Figure 9: Attitudes towards credit scores, October 2016
- What we think
Issues and Insights
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- Different factors affect people’s level of access to credit
- The facts
- The implications
- Changing employment landscape creates opportunities
- The facts
- The implications
- Life events spark engagement with credit scores
- The facts
- The implications
The Market – What You Need to Know
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- Unsecured lending continues to grow
- Insolvencies remain low
- FCA reviews entire high-cost credit market
- The Open Banking Standard will help to address financial exclusion
Market Environment
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- Unsecured lending continues to grow
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- Figure 10: Gross unsecured lending, 2012-16
- Availability of credit has improved…
- …but regulation has meant tighter affordability checks
- HCSTC cap has unmasked need for established non-mainstream lenders
- Changing demographics highlight need for alternative lending products
- Ageing population
- Self-employed
- Rising rental population
- Insolvencies rise slightly in 2016…
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- Figure 11: Individual insolvencies in England and Wales, by type, 2011-16 (not seasonally adjusted)
- …whilst more people are seeking debt advice
- Unemployment continues to fall…
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- Figure 12: Total UK unemployment rate among people aged 16+, quarterly, January 2010-September 2016
- …but Brexit could make the economic picture gloomier
Regulatory Context
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- FCA reviews entire high-cost credit market
- The Open Banking Standard will help to address financial exclusion
- FCA to review creditworthiness
Market Developments
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- Use of alternative data could reduce financial exclusion
- Brokers play an important role in the non-mainstream market
- Few large lenders seek lion’s share of the subprime unsecured lending market
- Innovation in the non-mainstream lending markets
- Guarantor loans
- Credit-builder cards
- Free credit score checks
The Consumer – What You Need to Know
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- Over half of the population could face difficulty accessing credit
- The majority of people are confident they could access credit
- Discomfort with credit means most want to repay quickly
- Two in five want their provider to take a more active role
- Important life events spark the need to improve scores
Credit Risk Consumer Profile
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- Lenders and credit risk
- Over half of the population could face difficulty accessing credit
- Employment or circumstantial factors
- Money management issues
- Experienced financial difficulties
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- Figure 13: Factors affecting access to credit, October 2016
- People with low-risk issues more likely to be offered a higher rate
- Payday loans and credit
- Education around some lifestyle factors will improve credit profile
- Lower-income borrowers have less access to credit
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- Figure 14: Household income, October 2016
Loan and Credit Product Ownership
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- Two thirds of UK adults owe money on a loan or credit product
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- Figure 15: Loan and credit product ownership, October 2016
- One in 10 have a personal loan
- Only 8% of people have four or more different types of products
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- Figure 16: Repertoire of loan and credit product ownership, October 2016
- Type of products owned depends on the type of borrower
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- Figure 17: Loan and credit product ownership, by factors affecting access to credit, October 2016
Confidence in Accessing Credit
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- Majority are confident about accessing credit
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- Figure 18: Confidence in being accepted for credit or a loan, October 2016
- Half of people with financial difficulties remain confident
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- Figure 19: Confidence in being accepted for credit or a loan, by factors affecting access to credit, October 2016
- Confidence rises as people get older
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- Figure 20: Confidence in being accepted for credit or a loan, by age, October 2016
- Regional differences highlight need for financial support
- Employment status affects confidence
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- Figure 21: Confidence in being accepted for credit or a loan, by employment status, October 2016
- Lack of credit usage limits future access
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- Figure 22: Confidence in being accepted for credit or a loan, by loan and credit product ownership, October 2016
Amount Owed on Loan and Credit Products
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- Most credit users have their borrowing under control
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- Figure 23: Amount owed on all loan and credit products, October 2016
- Debt-to-income ratio is a key indicator
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- Figure 24: Amount owed on all loan and credit products, by household income, October 2016
Attitudes towards Borrowing
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- Credit use concerns mean people try to repay as quickly as possible
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- Figure 25: Attitudes towards borrowing, October 2016
- Two in five want their provider to take a more active role
- Importance placed on expert advice as online information leads to confusion
- Interest in protection products but significant barriers exist
- Credit use concerns mean people prefer familiar providers
- Non-mainstream providers need to do more to become ‘first-choice’ lenders
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- Figure 26: Attitudes towards borrowing, by factors affecting access to credit, October 2016
Credit Score Checking
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- Majority of people never check their credit score
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- Figure 27: Credit score checking behaviour, October 2016
- Two in five credit users check their score at least once a year
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- : Figure 28: Credit score checking behaviour, October 2016
- Engagement falls when people owe less
- People with existing issues are more engaged
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- Figure 29: Credit check scoring behaviour, by factors affecting access to credit, October 2016
Attitudes towards Credit Scores
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- Over a third are currently trying to improve their score
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- Figure 30: Attitudes towards credit scores, October 2016
- Important life events spark the need to improve scores
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- Figure 31: Agreement with the statement ‘I'm currently trying to improve my credit score’, by age, October 2016
- Lack of connection between acceptance and credit score
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- Figure 32: Agreement with the statement ‘I'm currently trying to improve my credit score’, by confidence in being able to access credit, October 2016
- Paying a fee could be off-putting to those in most need of understanding their credit profile
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- Figure 33: Agreement with the statement ‘I'm willing to pay a monthly fee for detailed information about my credit profile’, by financial situation, October 2016
- Millennials are more willing to pay for detailed information
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- Figure 34: Agreement with the statement ‘I'm willing to pay a monthly fee for detailed information about my credit profile’, by generation, October 2016
Appendix – Factors Affecting Access to Credit
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- Employment or circumstance factors
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- Figure 35: Employment or circumstance factors affecting access to credit, October 2016
- Money management factors
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- Figure 36: Money management factors affecting access to credit, October 2016
- Financial difficulty factors affecting access to credit
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- Figure 37: Financial difficulty factors affecting access to credit, October 2016
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Consumer research methodology
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