Consumer Attitudes towards Debt: Inc Impact of COVID-19 - UK - July 2020

OVERVIEW
What you need to know 
Key issues covered in this Report
Products covered in this Report
COVID-19: Market context
Economic assumptions
EXECUTIVE SUMMARY
The market
COVID-19 crisis has made consumers more cautious about debt
Figure 1: Forecast of gross consumer credit lending (adjusted for COVID-19), 2015-25
Secured lending will dip in 2020 before recovering in 2021
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
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
Figure 4: Types of credit owned, May 2020
Older Millennials are most indebted
Figure 5: Amount of unsecured credit held, May 2020
A third reduced their debts in the past two years
Figure 6: Changes in the amount of unsecured debt, June 2019/May 2020
Consumers are focussed on reducing debt
Figure 7: Debt intentions, June 2019/May 2020
Consumers are less comfortable with their debt
Figure 8: Comfort with current level of debt, June 2019/May 2020
One in seven has put off making a large purchase on credit
Figure 9: Actions taken in response to COVID-19, May 2020
Most people trust themselves to use credit responsibly
Figure 10: Experiences of debt, May 2020
Over half think lenders can be a force for good
Figure 11: Attitudes towards debt, May 2020
What we think
THE IMPACT OF COVID-19 ON CONSUMER ATTITUDES TOWARDS DEBT
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
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
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
Outstanding debt falls even as repayments slow
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
Figure 13: Consumer credit flows, January 2017-April 2020
Credit cards have experienced a steady decline
Figure 14: Segmentation of outstanding consumer credit, 2015-20
Consumer credit dented by falling appetite for big-ticket purchases
Figure 15: Forecast of gross consumer credit lending (adjusted for COVID-19), 2015-25
SECURED DEBT – MARKET CONTEXT
Gross mortgage lending falls slightly in 2019
Figure 16: Gross mortgage lending, not seasonally adjusted, 2005-19
Approvals collapsed in April
Figure 17: Number of approvals for lending to individuals, not seasonally adjusted, January 2019-Apr 2020
Mortgage lending forecast to contract by a fifth
Figure 18: Forecast of gross mortgage lending (adjusted for COVID-19), 2015-25
COST OF DEBT
New rules lead to a spike in the cost of overdrafts
Cost of loans has fallen as credit cards become more expensive
Figure 19: UK interest rates on unsecured credit products, January 2010-May 2020
Competition drives down the cost of fixed rate mortgages
Figure 20: Quoted household mortgage rates, January 2017-May 2020
COVID-19 makes it more expensive for first-time buyers
Figure 21: Average cost of 2 year fixed rate mortgages, by LTV ratio, January 2017-May 2020
CONSUMER CONTEXT
Government interventions protect many households for now…
…but people have noticed a change
Future confidence has tumbled 
Figure 22: The financial well-being index, January 2017-June 2020
Fears of job losses will have a negative impact on the market
Figure 23: Expected impact of COVID-19 on the UK economy, 11-18 June 2020
Consumers think house prices will take a hit
Figure 24: Expected impact of COVID-19 on the UK economy, 11-18 June 2020
30% have put off major purchases
Figure 25: Financial impact of COVID-19, 21 - 28 May 2020
ECONOMIC OUTLOOK
Economy will return to pre-crisis size by late 2021
Figure 26: Annual GDP, 2007-24 (central forecast)
Unemployment is set to more than double during 2020…
Figure 27: Annual unemployment rate, 2007-24
Housing transactions decline for three years running
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
Figure 29: New and used car market volumes, 2014-19
WRITE-OFFS, REPOSSESSIONS AND INSOLVENCIES
Value of write-offs rises for two years running
Figure 30: Value of write-offs to individuals, 2010-19
Mortgage arrears at historically low levels going into COVID-19
Figure 31: Quarterly mortgage arrears (at least 2.5%) and repossessions, Q1 2017-Q1 2020
Insecure employment behind a steady rise in IVAs
Figure 32: Number of individual insolvencies, 2010-19
REGULATORY AND LEGISLATIVE CHANGES
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
Figure 33: New cases to the Financial Ombudsman Service, by industry, 2018/19-2019/20
Fines for overcharging mortgage customers
ADVERTISING AND MARKETING ACTIVITY
Halifax takes over as the biggest spender on advertising
Figure 34: Advertising expenditure, by advertiser, 2019/20
Competitive mortgage market drives adspend
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
Figure 36: Barclaycard - Holiday Essentials, July 2019
Educating consumers to prepare for the future
Figure 37: Barclaycard app, June 2020
New credit propositions focus on identity and placement
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
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
Credit cards are the most common form of debt
Figure 39: Types of credit owned, May 2020
Credit card use among low income households grows
Figure 40: Holders of credit card debt, by household income, June 2019/May 2020
Credit card use among young people may have peaked
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
Figure 42: Repertoire analysis of debt products, by generation, May 2020
VALUE OF UNSECURED DEBT
Older Millennials are most indebted
Figure 43: Amount of unsecured credit held, by generation, May 2020
Debt has become increasingly focussed on the young
Figure 44: Average unsecured debt, by age group, May 2014-May 2020
CHANGES IN DEBT SITUATION
A third reduced their debts 
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
Figure 46: Changes in the amount of unsecured debt, by age group, May 2020
DEBT INTENTIONS
Consumers are focussed on reducing debt
Figure 47: Debt intentions, June 2019/May 2020
Men are more optimistic about clearing debt
Figure 48: Debt intentions, by age group, May 2020
COMFORT WITH LEVEL OF DEBT
People are less comfortable about debt
Figure 49: Comfort with current level of debt, June 2019/May 2020
Older Millennials feeling increasingly uncomfortable
Figure 50: Net – Any uncomfortable with current level of debt, by generation, June 2019/May 2020
Londoners are most uncomfortable with their debt
Figure 51: Comfort with current level of debt, net - any uncomfortable, by region, May 2020
IMPACT OF COVID-19 ON CREDIT AND DEBT
One in seven has put off making a large purchase on credit
Figure 52: Actions taken in response to COVID-19, May 2020
15% of mortgage holders applied for a repayment holiday
Figure 53: Actions in response to COVID-19, rebased, May 2020
Gen Z are most reliant on government support
Figure 54: Actions taken in response to COVID-19, by generation, May 2020
Self-employed and temporary workers fall through the gaps
Figure 55: “Taken on additional debts”, by employment status, May 2020
EXPERIENCES OF DEBT
Most people trust themselves to use credit responsibly
Figure 56: Experiences of debt, May 2020
City-dwelling parents are most concerned about COVID-19
Figure 57: Consumer Attitudes Towards Debt – CHAID – Tree output, May 2020
Gen Z are fearful of impacting their credit rating
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
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
Most expect the cost of debt to increase
Figure 60: Attitudes towards debt, May 2020
An opportunity for lenders to be a force for good
Young people are most positive about lenders
Figure 61: Attitudes towards Debt, by generation, May 2020
A reluctance to talk harms relationships and credit ratings
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
Abbreviations
Nielsen Ad Intel coverage
Consumer research methodology
CHAID analysis
Figure 63: Consumer Attitudes Towards Debt – CHAID – Table output, May 2020
Figure 64: Consumer Attitudes Towards Debt – CHAID – Table output, May 2020