Author: Mintel Group Ltd.
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Unsecured Loans - UK - January 2021
Overview
 
Despite growing demand for flexibility in many consumer-facing markets, just 22% of existing and potential loan customers say the ability to extend or increase their loan is important when looking for a new product and 21% want the option to take a payment holiday. This highlights the dominance of concerns about interest rates and the importance of price competition.

COVID-19 has had a huge negative effect on unsecured loans. Consumers have seen their opportunities for big-ticket spending - a major driver of demand for loans - severely reduced by restrictions to trade and social activities. This led to an estimated 19% drop in gross lending in 2020. Looking ahead, the January 2021 lockdown will continue to dampen demand for loans and delay the recovery of the market. In the longer term, however, low rates and consumer appetite for loans to fuel major purchases mean lending is expected to recover quickly when circumstances allow.

One side-effect of COVID-19 that could threaten to further delay a recovery in lending is the increase in savings activity during the pandemic. Consumers who have been unable to spend as they normally would have instead boosted their savings funds, building a pot of money that, if made available to spend, will lessen the need to borrow on credit.

However, the pandemic has also given lenders an opportunity to improve perceptions and build trust with consumers by supporting customers through this difficult period. Payment holidays have been the most high-profile example of lenders providing assistance to borrowers affected by COVID-19. Continuing to stand by customers as government support measures are gradually wound down could result in significant reputational benefits.

Key issues covered in this Report
●	The impact of COVID-19 on the unsecured loans market.
●	The size of the unsecured loans market and major players.
●	Ownership of unsecured loan products and the cost of repayments.
●	Reasons for taking out a loan and consumer plans to borrow in the next 12 months.
●	Important features that consumers look for in a new loan.
●	Attitudes towards loans, including trust in lenders to lend responsibly.

COVID-19: Market context

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. 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. It wasn't until 15 June that non-essential stores were allowed to re-open, followed by pubs, restaurants, hotels and hairdressers on 4 July, and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a month-long lockdown from 5 November, and Scotland introducing a new five-level system of coronavirus restrictions. 

Despite these restrictions, however, case numbers continued to increase. All four UK nations tightened restrictions in January 2021, effectively leading to a full UK-wide lockdown. There is no defined end date for the lockdown, although the legislation pertaining to the English lockdown that was presented to Parliament extends to 31 March.

The UK’s vaccination programme started on 8 December 2020, and with both the Pfizer-BioNTech and the Oxford-AstraZeneca vaccines licenced for use in the UK, the government aims to offer a vaccine to 15 million people by mid-February.

Impact of the January lockdown and the vaccination rollout
Our core assumptions on the path of the pandemic had always included an expectation of severe disruption to markets and consumers’ lifestyles well into 2021, with a strong likelihood that the virus would still be with us even into 2022. Although the second wave of infections and subsequent lockdown puts us towards the negative end of our initial expectations, these developments are still broadly consistent with our previous assumptions.

Similarly, Mintel had factored in the likelihood that an effective vaccine would be available from early- to-mid 2021. The licensing of the Pfizer-BioNTech and Oxford-AstraZeneca vaccines puts us slightly ahead of that assumption, but the challenge associated with rolling out a new vaccination programme to millions of people means that our previous assumptions are still broadly consistent with the new reality.

Economic and other assumptions
Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its November 2020 Fiscal Sustainability Report. The scenario suggests that UK GDP will have fallen by 11.3% in 2020, recovering by 5.5% in 2021, and 6.6% in 2022. GDP isn’t expected to return to pre-COVID levels until the fourth quarter of 2022. The central scenario has unemployment peaking at 7.5% in Q2 2021.

The current uncertainty means that there is wide variation on the range of forecasts, however, and this is reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q4 2021. Its more negative scenario, by contrast, would mean that GDP doesn’t recover until Q3 2024.

The second wave of infections and subsequent lockdowns means that the short-term prospects for the country are consistent with the OBR’s negative scenario, but this needs to be balanced against the fact that the vaccine rollout is ahead of even the OBR’s central scenario. Medium- to long-term, then, we are still basing our forecasts and market analysis on the OBR’s central economic scenario.

Products covered in this Report
For the purposes of this Report, Mintel has used the following definitions: 

Personal loans are structured credit products, generally available to borrow for between £1,000 and £25,000 (subject to credit checks) over fixed repayment terms of one to 10 years.

High-cost short-term credit loans and payday loans are defined as unsecured loans of value under £1,000 with a repayment term of typically less than one year.

Guarantor loans are unsecured loans where a second person (the guarantor) is responsible for paying off the debt if the person who took out the loan is unable to meet the repayments. Guarantor loans are typically available from between £500 and £10,000. This Report considers guarantor loans to be high-cost credit.

Peer-to-peer (P2P) loans are personal loans lent through a P2P platform, which matches savers with borrowers to cut out the role of banks in lending money to consumers. P2P loans are typically available from £1,000 up to a value of £25,000.

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