Abstract
As far as attitudes towards credit are concerned, there are two notable trends - a greater level of concern over the amount of debt outstanding, and a correspondingly greater emphasis on financial responsibility.
In today' s borrow-now, pay-later culture, personal loans can be seen as being too inflexible when compared to a credit card. The generally lower interest rates and the discipline that a fixed repayment schedule requires, however, should sit well with the new mood of responsible borrowing.
Table of Contents
- Issues in the Market
- Report coverage
- Key issues
- Abbreviations
- Market in Brief
- The growth of the debt mountain
- Surge in consumer credit write-offs -- nearly all unsecured debt
- Interest rate rises threaten to increase numbers of struggling consumers...
- ...but overall personal finances holding up well for the majority
- Lifestage model of personal finance under threat
- Big rise in numbers of people facing credit downgrading
- £23 billion of problem debtRecord numbers of insolvencies
- Over-indebtedness is a major aspect of government policy
- Consumer research
- Consumer Background
- Key Point Summary
- Growing debt-servicing worries as bank rate edges ever higher...
- ...but consumers show an appetite for the spending lifestyle
- Figure 1: Second property ownership, trips abroad and growth in debt, 2002 and 2006
- The structure of the debt mountain
- Measures of indebtedness
- Figure 2: Degree to which consumers are able to cope with bills and credit commitments, 2007
- A need to develop a sensible approach to debt
- Consumers' attitudes towards debt are changing
- Figure 3: Agreement with selected financial lifestyle statements, 1993-2006
- Signs that consumers are looking to repay debts
- Figure 4: Expected savings, investment and borrwing activity, 2002-07
- The distribution of debt
- Figure 5: Percentages of households with secured and unsecured debt, 1995-2006
- Lack of financial planning adds to consumer debt woes
- Figure 6: Actions consumers would take if they faced a drop in income, 2006
- Suppliers of debt -- sailing into choppy seas
- Macro-Economic Background
- Key Point Summary
- The growth of the debt mountain
- Figure 7: Consumer credit outstanding and secured borrowings, 1997-2006
- Debt-to-income ratio continues to rise...
- Figure 8: Personal disposable income (PDI), total loans outstanding, total debt/PDI, average household debt and consumer debt write-offs, 2002-06
- ...but the rate of increase appears to be slowing
- Figure 9: 12-month growth rate of consumer lending, secured and unsecured lending, quarterly Q1 2002-Q1 2007
- From ' making-do' to falling into debt
- Figure 10: Bank base rate and consumer confidence, 1982-2007
- Personal finances measures hold up well
- Figure 11: Personal finances* and consumer confidence, 2002-07
- The impact of real interest rates
- Figure 12: Real interest rates* and the growth in credit, 1997-2007
- Strong employment growth...
- Figure 13: Employment, unemployment, full-time employees and self-employed, 1997-2007*
- ...but consumers are starting to worry
- Figure 14: Unemployment expectations, 2001-07*
- The availability of cheap credit
- Figure 15: Bank rate, credit card rate, SVR mortgage rate, effective mortgage rate, 1997-2006/07*
- Rates start to increase
- Financial promotion
- Figure 16: Financial promotional spend on lending products, 2003-07
- Lifestyle Changes
- Key Point Summary
- An ' easy debt' society
- People are happier to take on debt
- Changing pressures, and changing perceptions
- The wealth effect
- Figure 17: UK net wealth, residential property, financial assets and financial liabilities, 1997-2006*
- Funding spending through property
- Figure 18: Housing equity withdrawal, 2002-06, seasonally adjusted
- The Current State of the Credit Sectors
- Key Point Summary
- Credit write-offs
- Consumer debt write-offs set to rise further
- Figure 19: Mortgage and consumer credit write-offs, 2001-06
- Views from bank boardrooms
- Barclays
- RBS
- Lloyds TSB
- HBOS
- HSBC
- Unsecured debt
- Cards and personal loans the major cause of over-indebtedness
- Figure 20: Unsecured debt as a percentage of average income and of GDP, 1995-2006
- The make-up of unsecured credit
- Figure 21: Credit card debt and overall outstanding unsecured debt, 1995-2006
- Figure 22: Ownership of credit card/charge card, by age and socio-economic group, 1993-2006
- Credit cards and personal loans -- main products held by people seeking debt counselling
- Older age groups increasingly at risk from debt problems
- Figure 23: Outstanding debt, by age band and growth in outstanding debt, 2004-06
- Women on low incomes are also increasingly vulnerable to debt problems
- Renters more vulnerable
- A million debtors face court action
- Mortgage debt
- The threat of escalating mortgage debt write-offs
- Figure 24: Mortgage debt write-offs, arrears and repossessions, 2001-06
- Possession orders at their highest since early 1990s
- Figure 25: Mortgage possession actions, 1990-2006
- Affordability worsens...
- ...as prices continue to rise
- Figure 26: Changes in relative affordability: All mortgagors, movers, first-time buyers, 1990-2006
- How big a burden are mortgage debts?
- Negative equity returns?
- Some 1.3 million fixed loans maturing in 2007
- Interest-only mortgages, payment holidays and term extensions
- The view from the bank
- Has the mortgage industry been too innovative and built up too much debt?
- Figure 27: Mortgage intentions and mortgage approvals, Q3/Q4 2002- Q1/Q2 200
- Debt Management and the Rise of IVAs
- Key Points Summary
- The emergence of debt management companies
- Debt management industry is carefully monitored
- New non-fee-based bodies taking more business from indebted
- The experience of CCCS clients
- Figure 28: Number of CCCS clients with a DMP and starting a DMP, 2004-06
- Debt consolidation companies
- Leading suppliers
- Demand for debt consolidation loans
- Sell and rent back
- IVAs and personal bankruptcies
- Figure 29: Individual insolvencies in England and Wales, 1998-Q1 2007
- Individual Voluntary Agreements (IVAs)
- Growing hostility to IVA firms
- Personal bankruptcy
- Figure 30: Reasons why clients decide not to pursue bankruptcy, 2006
- Profile of bankrupts
- Debt and financial stress hotspots
- The impact of recent law changes
- Extreme debt
- Efforts to Control Consumer Debt
- Key Point Summary
- Government initiatives
- Financial capability
- An increase in affordable credit
- New controls on credit licensing
- Debt advice
- How cost-effective is debt advice?
- Improvement in dispute resolution
- Consumer credit regulation, the OFT and FSA
- Treating Customers Fairly (TCF) and principles-based regulation
- The Consumer -- Credit Ownership
- Key Point Summary
- Scope of the research
- 31 million adults have a credit product
- Figure 31: Borrowing facilities used, 2005 and 2007
- Changing borrowing patterns
- Men tend to hold more credit products
- Figure 32: Borrowing facilities used, by gender and socio-economic group, March 2007
- Mortgage ownership concentrated among ABs
- Four fifths of under-45s are borrowers...
- Figure 33: Borrowing facilities used, by age, March 2007
- ...and credit usage peaks among 25-34-year-olds
- Counting the cost of kids
- Figure 34: Borrowing facilities used, by Mintel' s Special Groups and working status, March 2007
- Tracking borrowers online
- Crossing the Pennines racks up the debts
- Figure 35: Borrowing facilities used, by TV region, March 2007
- Scots look to their overdrafts
- Financial Activity Survey suggests future growth in Northern Ireland
- The Consumer --Debt Levels
- Key Point Summary
- Average unsecured debt outstanding of £5,251
- Figure 36: Amount of outstanding consumer credit, 2005 and 2007
- Are consumers underestimating their level of borrowing?
- More money -- more problems?
- Figure 37: Amount of outstanding consumer credit, by gender and socio-economic group, March 2007
- Debt peaks among 45-54-year-olds
- Figure 38: Amount of outstanding consumer credit, by age, March 2007
- Affluent -- but do they have the chance to save?
- Continued scope for debt management marketing
- Debt levels track household income
- Figure 39: Amount of outstanding consumer credit, by household income, March 2007
- Consumer credit highest among Scots
- Figure 40: Amount of outstanding consumer credit, by TV region, March 2007
- Average mortgage debt is £92,200
- Figure 41: Amount of outstanding mortgage debt, March 2007
- Better informed? Or just more honest?
- First-time buyers stretching themselves
- Figure 42: Amount of outstanding mortgage debt, by gender, age, socio-economic group and marital status, March 2007
- Mortgage debt reflects property values
- Figure 43: Amount of outstanding mortgage debt, by Mintel' s Special Groups, household income and TV region, March 2007
- The Consumer -- Reasons for Borrowing
- Key Point Summary
- Home ownership and bringing up children head reasons for borrowing...
- Figure 44: Reasons for borrowing money, by gender and socio-economic group, March 2007
- ...but there' s still room for ' comfort shopping'
- Under-25s admit to wasteful spending
- Figure 45: Reasons for borrowing money, by age and marital status, March 2007
- Divorce a strain for those on moderate incomes
- Figure 46: Reasons for borrowing money, by household income, March 2007
- Londoners look for mortgages, not car loans
- Figure 47: Reasons for borrowing money, by region, March 2007
- Only around a half of borrowers are borrowing to fund asset acquisition or
self-improvement
- Figure 48: Borrower typologies, March 2007
- The Consumer -- Is Debt a Concern?
- Key Point Summary
- Some 4.4 million people worried about their debts
- Figure 49: Attitudes towards current and future borrowing, 2005 and 2007
- Younger people face mounting debt problems
- Figure 50: Attitudes towards current and future borrowing, by gender, age and socio-economic group, March 2007
- Singles struggling to keep up
- Figure 51: Attitudes towards current and future borrowing, by commercial TV viewing and marital status, March 2007
- Daytime debt advertising hitting the mark?
- Higher debts, but fewer worries
- Figure 52: Attitudes towards current and future borrowing, by working status, household income, household tenure and TV region, March 2007
- Property, security and debt concerns
- Cards, not mortgages, the key area for concern
- Figure 53: Attitudes towards current and future borrowing, by type of credit held, March 2007
- First time buyers struggling?
- Figure 54: Attitudes towards current and future borrowing, by level of mortgage debt, March 2007
- A third of heavy debtors worried about their borrowing
- Figure 55: Attitudes towards current and future borrowing, by level of non-mortgage debt, March 2007
- Future Trends
- Key Point Summary
- Economic developments
- Interest rate expectations are increasing...
- ...bolstered by inflation fears
- 25-30% of mortgage holders set to struggle at 5.75% bank rate
- A sharp rise in interest rates is a threat to the housing market...
- ...but demand for home equity withdrawal will continue
- Potential for yet higher levels of problem borrowing
- Changing structure of credit markets will accelerate
- On the positive side the jobs outlook is improving
- Debt complaints are set to become more centre-stage
- Figure 68: Number of credit-related complaints made to Financial Ombudsman Service, 2005 and 2006
- Specialist debt companies: a growth industry
- Spread of broadband and mobile telephony add to difficulties of controlling debt
- Attitudes towards debt: vital to improve consumer education
- Appendix
- Consumer research -- detailed demographics
- Type of borrowing facility used
- Figure 69: Borrowing facilities used, by gender and socio-economic group, March 2007
- Figure 70: Borrowing facilities used, by age, March 2007
- Figure 71: Borrowing facilities used, by marital status and lifestage, March 2007
- Figure 72: Borrowing facilities used, by Special Groups and working status, March 2007
- Figure 73: Borrowing facilities used, by TV region, March 2007
- Figure 74: Borrowing facilities used, by technology usage and newspaper readership, March 2007
- Figure 75: Borrowing facilities used, by commercial TV viewing and supermarket usage, March 2007
- Level of non-mortgage debt
- Figure 76: Amount of outstanding consumer credit, by gender and socio-economic group, March 2007
- Figure 77: Amount of outstanding consumer credit, by age, March 2007
- Figure 78: Amount of outstanding consumer credit, by marital status and lifestage, March 2007
- Figure 79: Amount of outstanding consumer credit, by Special Groups and working status, March 2007
- Figure 80: Amount of outstanding consumer credit, by household income, March 2007
- Figure 81: Amount of outstanding consumer credit, by TV region, March 2007
- Figure 82: Amount of outstanding consumer credit, by technology usage and newspaper readership, March 2007
- Figure 83: Amount of outstanding consumer credit, by commercial TV viewing and supermarket usage, March 2007
- Level of mortgage debt
- Figure 84: Amount of outstanding mortgage debt, by gender, age, socio-economic group and marital status, March 2007
- Figure 85: Amount of outstanding mortgage debt, by Special Groups, household income and TV region, March 2007
- Figure 86: Amount of outstanding mortgage debt, by technology, media and supermarket usage, March 2007
- Reasons for borrowing money
- Figure 87: Reasons for borrowing money, by gender and socio-economic group, March 2007
- Figure 88: Reasons for borrowing money, by age and marital status, March 2007
- Figure 89: Reasons for borrowing money, by age and marital status, March 2007
- Figure 90: Reasons for borrowing money, by lifestage and Special Groups, March 2007
- Figure 91: Reasons for borrowing money, by household income, March 2007
- Figure 92: Reasons for borrowing money, by region, March 2007
- Figure 93: Reasons for borrowing money, technology and media usage, March 2007
- Figure 94: Reasons for borrowing money, by supermarket usage, March 2007
- Attitudes towards current and future borrowing
- Figure 95: Attitudes to current and future borrowing, by gender, age and socio-economic group, March 2007
- Agreement with debt-related statements
- Figure 96: Agreement with the statement "It' s too easy to get into debt these days", March 2007
- Figure 97: Agreement with the statement "I have rainy day savings to cover for unexpected expenses", March 2007
- Figure 98: Debt consolidation among mortgage holders, by gender, age, socio-economic group and marital status, March 2007
- Figure 99: Agreement with the statement "The idea of combining all my debt into one loan repayment appeals to me", by gender, age, socio-economic group and marital status, March 2007
- Figure 100: Agreement with the statement "Being in debt doesn' t really worry me", by gender, age and socio-economic status, March 2007
- Figure 101: Agreement with the statement "I would consider bankruptcy or taking out an IVA if my situation becomes serious enough", by demographic group, March 2007
- Figure 102: Agreement with debt-related statements, by level of mortgage debt, March 2007
- Figure 103: Agreement with debt consolidation/management statements, by level of mortgage debt, March 2007
- Figure 104: Agreement with debt-related statements, by level of non-mortgage debt, March 2007
- Figure 105: Agreement with debt consolidation/management statements, by level of non-mortgage debt, March 2007
- Attitudes towards debt and borrowing
- Figure 106: Attitudes towards debt and borrowing, March 2007
- Figure 107: Attitudes towards debt and borrowing, March 2007
- Figure 108: Attitudes towards debt and borrowing, March 2007
- Figure 109: Attitudes towards debt and borrowing, by Special Groups, March 2007
- Figure 110: Attitudes towards debt and borrowing, by household income, March 2007
- Figure 111: Attitudes towards debt and borrowing, by region, March 2007
- Figure 112: Attitudes towards debt and borrowing, by technology and media usage, March 2007
- Figure 113: Attitudes towards debt and borrowing, by commercial TV viewing and supermarket usage, March 2007
