A Datamonitor report UK Secured Personal Loans 2006 Published: Sep-06 Product Code: DMFS1890 Providing you with: Quantification of the size of the UK secured personal loan market (second charge market) Insight into the future challenges lenders and brokers will face Gross advances forecasts of the secured personal loan market up to 2010 Discussion on the attitudes of brokers and examines their strategies in the market Use this report to... Better plan your strategies by gaining estimated market shares for the major players www.datamonitor.com/financial
UK Secured Personal Loans 2006 DMFS1890 Introduction The secured personal loans market had been a model of success for a period of ten years or more. Both the market's pioneers and the mainstream and specialist lenders that flocked to the market enjoyed good margins and rapid growth. However, the mood changed in the latter half of 2004. This report examines the reasons for the downturn in the secured personal loan market. Datamonitor's Secured Personal Loans 2006 is an invaluable guide offering in-depth analysis on a market, which after strong growth over a number of years has recently been in decline. Created using a combination of secondary and primary research, this report provides key statistics on market size and competitor market shares. It also presents details and recent developments relating to regulation and competitor activities. Datamonitor's forecast for the secured personal loan market is also provided. Key findings and highlights After expanding rapidly for a number of years, the secured personal loan market has struggled over the last two years. Indeed, since the market s peak in 2003, when gross new lending totalled 7.0 billion, the market has contracted significantly. Gross new lending fell by 3.9 per cent to 6.7 billion in 2004 and by a further 26.0 per cent in 2005. The intermediary market is dominated by six brokers. According to industry experts Datamonitor spoke to, these six brokers control around three-quarters of the intermediary market. All of these brokers compete in the non-standard end of the market. Brokers rely on the commission they receive from lenders and set up fees from customers. However, the commission brokers receive from lenders is being squeezed as new regulations mean lenders will receive less from PPI payments and early redemption penalties. Unfortunately for consumers, this means that brokers fees will increase. Reasons to buy By providing estimated market shares for the major players, it allows you to better plan your strategies Plan your strategy with confidence using Datamonitor's forecasts of the secured lending market up to 2010 Contact us... From Europe: tel: +44 20 7675 7366 fax: +44 20 7675 7016 email: fsinfo@datamonitor.com From Germany: tel: +49 69 9750 3119 fax: +49 69 9750 3320 email: deinfo@datamonitor.com From the US: tel: +1 212 686 7400 fax: +1 212 686 2626 email: usinfo@datamonitor.com From Asia Pacific: tel: +61 2 8705 6900 fax: +61 2 8705 6901 email: apinfo@datamonitor.com
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UK Secured Personal Loans 2006 DMFS1890 Table of contents INTRODUCTION Who is the target reader? How to use this report MARKET CONTEXT Introduction - The secured personal loans market defined After a number of years of strong growth, secured personal loan providers have experienced a tough market in the last two years - The secured personal loan market has contracted over the last two years - The latest figures from the FLA suggest that the market is still struggling to replicate its previous performance Greater economic and housing market uncertainty has contributed to a slowdown in the secured personal loan market - Five consecutive interest rate rises in 2003 and 2004 did not help the secured personal loan market - House price growth has slowed in recent years, having a major impact upon the secured personal loans market - GDP growth in 2005 was disappointing - Unemployment is on the rise - Consumer spending has been falling A preference for other secured lending products has had a detrimental impact on the secured personal loans market - The secured personal loan market has performed badly in comparison to the remortgaging market as preferences change - The further advance market has outperformed the secured personal loan market in recent years - The secured and unsecured personal loans market are in competition but both have lost out in recent years Regulation is changing the secured personal loan market - Exclusion of secured personal loans under the FSA means that the market is regulated by the Consumer Credit Act - The Consumer Credit Act has reformed legislation that will greatly affect the secured personal loan market - Payment protection insurance is now regulated by the FSA - The OFT's Consumer Credit Advertisements Regulation 2004 means less confusion for consumers - These regulatory changes will lead to a more transparent secured loan market COMPETITIVE DYNAMICS Introduction While lenders are clearly important in the secured personal loan market, the market is dominated by brokers - Intermediaries account for the vast majority of loan originations - Intermediaries dominate the secured personal loans market for a number of reasons - A few brokers control the intermediary channel - Lenders believe that brokers suffer from a poor reputation - The number of brokers in the market is due to fall due to consolidation - IFAs are an untapped source of business Lenders must understand the broker channel to maximise their secured personal loan business - The suitability and pricing of a secured personal loan is the primary concern for intermediaries when choosing a lender - Overall, intermediaries are happy with the service they get from their main lender - For more information... Specialist lenders are now in a leadership position as Halifax steps back from the market - Market share data for 2005 shows that GE Money and HFC are the leading lenders - A couple of mainstream lenders have have taken a step back from the secured personal loan market - Having said this the market is by no means dead, as specialists have been looking to fill the gap Lenders and brokers use a range of strategies to aquire customers - The secured personal loans market has become more price competitive, but some of the reasons for this are dubious - Aggressive advertising tactics are used to aquire customers in the secured personal loan market...if the press looked at other products they would find examples of consumers getting into trouble. Why do they always attack secured personal loans?... Paul Marsh, UK Secured Personal Loans 2006
www.datamonitor.com/financial - Quality of service is important to retaining customers according to lenders and brokers - Products innovation has not been used to gain market share in the secured personal loan market FORECASTING THE SECURED PERSONAL LOAN MARKET Introduction - Datamonitor's forecasting model In Datamonitor's view, the secured personal loan market will rebound by the end of 2006 and will then continue to grow steadily afterwards - As a result of these drivers, the secured personal loan market will grow to 6.3 billion in 2010 However, the market's performance will change under different economic scenarios - An optimistic scenario forecasts a strong rise in the secured personal loan market up to 2010 - A pessimistic scenario forecasts further decline of the secured personal loan market APPENDIX TABLES Table 1: Table 2: Examples of incentives offered by some lenders to encourage mortgage holders to switch lender, 2006 Value of secured personal loans arranged directly and indirectly, 2005 Table 3: Typical APRs vary by lender, July 2006 Table 4: Top ten players by advertising spend, 2004-2005 Table 5: Percentage share of total advertising spend by channel, 2001-2005 Table 6: Economic forecasts used in Datamonitor's forecasting scenario, 2005-2010f Table 7: Forecasted secured personal loan gross advances under Datamonitor's scenarios, 2005-2010f Table 8: Secured personal loan growth, 1995-2005 Table 9: Bank of England base rate, 1995-2005 Table 10: Average house prices and the rate of change of house prices in the UK, 1995-2005 Table 11: Total UK ILO unemployed and those claiming unemployment benefits, 1996-2005e Table 12: Unsecured personal loan gross advances, 2001-2005 Table 13: Remortgaging gross advances, 2001-2005 Table 14: Number of bankruptcies and IVAs in Wales and England, 2001-2005 Table 15: Outstanding balances on secured and unsecured retail lending on a per capita basis in the UK, 1996-2005 Table 16: How important are the following features in your choice of number one lender? Table 17: What would tempt you to offer another competitor's loans more often? Table 18: Concentrating on your main lender, how happy are you with the following? Table 19: Market share of leading lenders in the secured personal loan market, 2005 FIGURES Figure 1: The secured personal loan market has contracted over the last two years, 1995-2005 Figure 2: Rising interest rates between 2003 and 2004 coincided with the downturn of the secured personal loan market, 1995-2005 Figure 3: The contraction of the secured personal loan market is linked to the fall in the rate of increase in house prices, 1995-2005 Figure 4: ILO unemployment increased in 2005, 2001-2005 Figure 5: Both the secured personal loan market and the remortgaging markets began contracting in 2004, 2001-2005 Figure 6: The proportion of flexible mortgage customers making use of payment holiday feature remains small, 2002-2005 Figure 7: Both the secured and unsecured personal loan markets have suffered in the past couple of years, 2001-2005 Figure 8: 71.5 per cent of secured personal loans are purchased through indirect channels, 2005 Figure 9: Debtbuster Loans website encourages Internet browsers to Figure 10: The suitability of a product's characteristics and its pricing are the most important attributes for intermediaries, 2006 Figure 11: The opportunity to offer better products to their customers is the main incentive for intermediaries to look at new lenders, 2006 Figure 12: Most intermediaries are generally happy with their main current lender, 2006 Figure 13: GE Money and HFC lead the secured personal loan market with a combined share of 34.2 per cent, 2005 Figure 14: Nemo Personal Finance's website allows applicants to do a quick application that captures their personal details, 2006 Contact us... From Europe: tel: +44 20 7675 7366 fax: +44 20 7675 7016 email: fsinfo@datamonitor.com From Germany: tel: +49 69 9750 3119 fax: +49 69 9750 3320 email: deinfo@datamonitor.com From the US: tel: +1 212 686 7400 fax: +1 212 686 2626 email: usinfo@datamonitor.com From Asia Pacific: tel: +61 2 8705 6900 fax: +61 2 8705 6901 email: apinfo@datamonitor.com
UK Secured Personal Loans 2006 DMFS1890 Figure 15: Moneysupermarket.com is a way for lenders and brokers to gain exposure without having to observe advertising rules Figure 16: Loans.co.uk is the biggest advertising spender in the secured personal loans market, 2005 Figure 17: Picture Financial is the biggest spending lender on secured personal loan advertising, 2005 Figure 18: Direct mail is the most important form of advertising for secured personal loans, 2001-2005 Figure 19: Debt consolidation is the most common reason for taking out a secured personal loan, 2003 Figure 20: Debt consolidation as a reason for taking out a secured personal loan is growing in importance, 2003-2004 Figure 21: Personal debt in the UK has been growing rapidly, 1996-2005 Figure 22: Gross advances under the three forecast scenarios differ, 2001-2010f Figure 23: The thinking process behind the neutral scenario envisions weaker growth up to 2010 than was achieved in the previous five years Figure 24: In Datamonitor's view, gross advances will increase to 6.3 billion in 2010, 2001-2010f Figure 25: The thinking process behind the optimistic scenario envisions strong growth up to 2010 Figure 26: Under the optimistic scenario, secured personal loan gross advances increase rapidly, 2001-2010f Figure 27: The thinking process behind the pessimist scenario envisions a decline for two years, followed by very slow growth up to 2010 Figure 28: Under the pessimistic scenario, secured personal loan gross advances continue to decline until 2008 when a slow pick up is forecast, 2001-2010f Figure 29: Datamonitor's core consulting capabilities...the low rate some lenders offer means that they can't be making any profit and must be relying on the profit generated from PPI... Paul Marsh, UK Secured Personal Loans 2006
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