Consumer Credit in the UK – Key Trends and Opportunities to 2018

Date: 2015-09

“Consumer credit increased throughout 2014, as economic recovery gained momentum
Consumer credit growth has shown consistent signs of growth in 2014, for the first time since before the financial crisis. This is in a large part due to consumer confidence also recording a positive number for the first time since the credit crunch, low interest rates and a steadily growing GDP, as nearly every category of lending has grown up to July 2014.Demand for and availability of credit also grew in both the second and third quarters of 2014, which has been a key factor.

Record-low interest rates on personal loans driving other loans and advancements category
HSBC became the first lender to break the 5% interest rate barrier for its GBP7,500โ€“15,000 personal loan, which launched a price war between mainstream lenders, as each bank or building society tried to get to the top of the comparison tables. Tesco lowered its interest rates soon after, and Sainsburyโ€™s raised its upper limit to GBP 35,000 in October โ€“ a record high personal loan. This means that lending is cheaper than ever for consumers, which has unsurprisingly given the industry a huge boost. The personal loan category was hit harder than any other in the aftermath of the financial crisis, and the stock of personal loans remains over GBP30.0 billion below its January 2008 total, so there is still ample room for recovery.

Central bank rate at remains at 0.5%; rise no longer imminent, but still set for mid-2015
The Bank of Englandโ€™s (BoE) base rate has been at a record low since March 2009, at0.5%, meaning that financial institutions have had much cheaper access to credit; the rate looks set to rise in mid-2015, however. This was expected sooner, but a contraction in real wages and weaker global growth looks set to delay the increase by at least a quarter.
This will cause the cost of credit to rise, as banks will have to pay more for funds. Increases will be very steady, however, and the first rise will only be to a maximum of 0.75%, meaning any setback to the industry should be minor.

Consumer confidence and demand and availability both improving in 2014
Consumer confidence was positive in July 2014 โ€“ the first time since before the financial crisis, with a score of 1 for the month โ€“ and the indexโ€™s recent surge has helped to drive the consumer credit industry during this year. The index averaged -29.1 in 2012 and -19.9 in 2013, but just -6.8 in 2014. This improvement is expected to continue, as it has risen throughout 2014, although the BoE increasing the central bank rate could set it back temporarily.

Both demand for and availability of credit increased in the second and third quarters of 2014, as the overall industry has grown. Previously, demand had generally outstripped availability since 2009, as banks became reluctant to approve loans, though availability also remained in negative net percentage balances until 2011.

Motor finance continues to record extraordinary growth
Motor finance is the only typical form of consumer credit that has recorde substantial growth for a prolonged period. Both the number of new cars bought from dealerships and the value of advances paid on new cars have grown monthly on the previous year, staying at consistently above 20% since the beginning of 2012.
Student loan figures surge as higher tuition fees introduced

The student loan category is not affected by the same factors as the rest of the consumer credit industry, as growth has been driven by the number of students and cost of tuition continuing to rise. The substantial jump from GBP3.97 billion in 2012โ€“2013 to GBP 5.66 billion in 2013โ€“2014 represents the impact of increased tuition fees.
Credit card market begins to recover after extremely difficult period

Much like the personal loan category, credit cards suffered massively during the credit crunch. Gross lending on credit cards has been growing since 2013, which shows the industry is recovering. Repayments have been rising at a very similar rate, however, which suggests consumers still remain wary of debt.”


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