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Consumer Attitudes Towards Debt - UK - July 2016

Published By :

Mintel

Published Date : Jul 2016

Category :

Banking

No. of Pages : N/A

Lending has grown rapidly in recent years, driven by rising consumer confidence and the cheap availability of credit. However, consumer confidence has taken a knock following the UK’s decision to leave the EU, which will result in a more cautious approach towards personal finances. In the short term while the terms of Brexit are determined, a period of uncertainty will lead to reduced demand for credit to pay for big ticket items - especially those purchases that can be delayed until people perceive there is more economic stability.

Table of Content

Overview

What you need to know
Definitions

Executive Summary

The market
Lending at highest level since financial crisis…
but some lessening of demand expected in the short term
Figure 1: Gross and net (amount outstanding) unsecured consumer credit lending, excluding the Student Loans Company, (includes credit cards), quarterly lending, 2009-15
Mortgage lending at highest point since 2008…
but EU referendum result will slow growth during 2016
Figure 2: Total secured lending, by gross and net advances, 2010-15 (not seasonally adjusted)
The consumer
Nearly two thirds have some form of debt
Figure 3: Ownership of credit products, May 2016
Majority feel comfortable with their repayments…
Figure 4: Level of comfort with debt repayments, 2014-16
Most people will use their salary to repay debt
Figure 5: Expected source of funds for debt repayments, May 2016
Credit is seen as a last resort
Figure 6: Agreement with attitudes towards managing and borrowing money, May 2016
Credit most likely to be used to fund unexpected expenses
Figure 7: Any expected reason for taking out credit products in the future, May 2016
What we think

Issues and Insights

Family and friends growing as a source of credit
The facts
The implications
Opportunity for a resurgence of PPI?
The facts
The implications
Postponed life-events will increase demand for credit later in life
The facts
The implications

The Market – What You Need to Know

Growth in real disposable income lags behind GDP
Consumer confidence rising steadily
Lending at highest level since financial crisis
Mortgage lending at highest point since 2008
Decline in write-offs stalls

Economic Outlook

Growth in real disposable income lags behind GDP
Figure 8: Gross domestic product, quarterly growth rate (seasonally adjusted), 2009-16
Figure 9: GDP per head at current market prices, and real household disposable income per head, 2011-15
Consumers are saving less in relation to their income
Figure 10: Household saving ratio, 2009-15
A cut to base rate will keep borrowing rates low
Figure 11: UK interest rates, January 2009-May 2016
Unemployment at lowest level since 2005
Figure 12: Total UK unemployment rate among people aged 16+, quarterly, January 2010-March 2016

Consumer Financial Situation

Financial well-being has continued to edge upwards
Figure 13: The financial well-being index, January 2009-July 2016
People feel better off than they did last year
Figure 14: The recovery index, July 2011-July 2016
Financial confidence also moves upwards…
but Brexit vote increases level of uncertainty
Figure 15: Financial Confidence Index, January 2009-July 2016

Consumer Credit Lending

Consumer credit lending at highest level since before financial crisis
Figure 16: Gross and net (amount outstanding) unsecured consumer credit lending, excluding the Student Loans Company, (includes credit cards), quarterly lending, 2009-15
‘Other’ consumer credit lending sees resurgence
Figure 17: Consumer credit lending (excluding student loans), 2009-15

Mortgage Lending

Mortgage lending at highest point since 2008
Figure 18: Total secured lending, by gross and net advances, 2010-15 (not seasonally adjusted)
Mortgage approvals peak at the start of 2016
Figure 19: Number of quarterly mortgage approvals seasonally adjusted, by type, January 2010-March 2016

Write-offs, Repossessions and Arrears

Decline in write-offs stalls
Figure 20: Value of write-offs to loans to individuals, 2010-15 (not seasonally adjusted)
Arrears and repossessions remain low
Figure 21: Mortgage arrears (2.5% or more of mortgage balance) and repossessions, January 2010-March 2016
Insolvencies continue to fall
Figure 22: Individual insolvencies in England and Wales, by type, 2010-15 (not seasonally adjusted)
36% decline in debtor’s petitions
Figure 23: Individual bankruptcies in England and Wales, by petition type, 2010-15 (not seasonally adjusted)

The Consumer – What You Need to Know

Nearly two thirds have some form of debt
Debt remains under control
Most people will use their salary to repay debt
Credit is seen as a last resort
Credit most likely to be used to fund unexpected expenses

Credit Product Ownership

Nearly two thirds have some form of debt
Figure 24: Ownership of credit products, May 2016
Credit cards are the most popular form of credit
Informal borrowing plays a key role for some groups
35-44-year-olds most likely to have debt
Figure 25: Ownership of credit products, by age, May 2016
Most people have three or fewer credit products
Figure 26: Repertoire of credit products, May 2016
Overdrafts and loans are secondary products
Figure 27: Repertoire of credit products, by type of credit products, May 2016

Amount Owed on Unsecured Credit Products

Debt remains under control
Figure 28: Amount owed on unsecured credit products, 2012-16
Higher earners have higher levels of debt
Figure 29: Amount owed on unsecured credit products, by household income, May 2016

Level of Comfort with Debt Repayments

Majority feel comfortable with their repayments…
Figure 30: Level of comfort with debt repayments, May 2016
but one in five is struggling
Lending criteria has relaxed over the last year
Figure 31: Level of comfort with debt repayments, 2014-16
Unsecured debt causes more worry
Over-65s are most likely to increase repayments
Figure 32: Level of comfort with debt repayments, by age, May 2016

Expected Repayment Method

Most people will use their salary to repay debt
People use credit over dipping into savings
Figure 33: Expected source of funds for debt repayments, May 2016
Paying for debt in retirement
Figure 34: Expected source of funds for debt repayments, by age, May 2016
Family and friends are a last resort when borrowing
Figure 35: Expected source of funds for debt repayments, by level of comfort with debt repayment, May 2016
Repayment strategies by level of debt
Figure 36: Expected source of funds for debt repayments, by amount owed, May 2016

Attitudes towards Borrowing

Credit is seen as a last resort
Figure 37: Attitudes towards managing and borrowing money, May 2016
Majority of people think its socially acceptable to have debt
Three in five think it’s important to know your personal credit rating
Most are happy to have products with different providers
Online platforms can help those who are struggling
Figure 38: Agreement with the statement ‘I would be interested in using an online platform to help manage my debt’, by level of comfort with debt repayments, May 2016

Future Use of Credit Products

Credit most likely to fund unexpected expenses
Figure 39: Future use of credit products, May 2016
Credit cards are the go-to form of credit
Intended loan usage remains low despite record rates
Younger people more likely to use credit
Figure 40: Future use of credit products – ‘Any type of credit’, by age, May 2016

Appendix – Data Sources, Abbreviations and Supporting Information

Abbreviations
Consumer research methodology

List of Table

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