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UK Secured Lending 2005

Product Type: Market Research Report
Published by: Datamonitor
Published: July 2005
Product Code: R313-11192
Description
Introduction
Secured lending has been a fast growing market over the last five years. In fact, it has outpaced both unsecured consumer credit and remortgaging, both of which have boomed. What has fuelled this growth and will it continue? What are the challenges lenders face? Datamonitor's annual report provides comprehensive data and analysis in order to answer these vital questions.

Scope
Quantifies the size of the UK secured lending market as well as the second charge loans market
Gives insight into the future challenges lenders and brokers will face
Provides gross advances forecasts of the secured lending market up to 2009
Primary interviews with leading figures in the secured lending market
Highlights
Secured lending has expanded at a great pace in recent years. The market has grown from £6.4 billion in 2000 to £32.6 billion in 2004, representing an average growth of 50.2 per cent a year. As a result, secured lending now accounts for 11.2 per cent of the total mortgage market.

Secured lending continues to outperform virtually all other lending products. While unsecured consumer credit grew at an average of 8.6 per cent since 2000, secured lending has expanded much faster. In addition, secured lending has even managed to outpace the booming remortgaging sector every year except for 2003.

As a result of the high levels of unsecured debt, the demand for debt consolidation is booming. 57.2 per cent of the total number of loans contracted by customers from FLA members in 2003 were used for the purpose of debt consolidation. In addition, debt consolidation accounted for a total of 63.2 per cent of total advances in 2003.

Reasons to Purchase
Determine the size of the secured loan market for 2004 and who its biggest players are
Understand how the market is structured and who makes up its customer base
Plan your strategy with confidence using Datamonitor's forecasts of the secured lending market up to 2009
Table of Contents
TABLE OF CONTENTS

CHAPTER 1 EXECUTIVE SUMMARY 3

Introduction 3

Market Context 3

Secured lending has grown impressively in recent years 3

House prices and low base rates have encouraged growth in recent years 5

However, it is second charge loans and other qualitative factors that are driving secured lending forward 6

Competitive Dynamics 9

The secured loan market is made up of two types of players 9

The secured loan market is composed of few lenders 9

Mainstream lenders have now come into the market 10

Most of the market is is made up of intermediaries 11

There are a range of strategies used to acquire customers 11

Forecasting the Secured Lending Market 12

In Datamonitor’s view, secured lending will slow in 2005 but will return to growth the year after 13

Lenders will also face a number of other challenges 14

CHAPTER 2 INTRODUCTION 26

Who is the target reader? 26

How to use this report 26

CHAPTER 3 MARKET CONTEXT 28

Introduction 28

It is important to understand the scope and definitions of the secured lending market 28

Various steps are involved in Datamonitor’s sizing methodology of the secured lending market 29

Secured lending has grown impressively in recent years, outperforming other products 30

The growth of secured lending is also reflected in the rise in the number of loans, as well as the average loan value 32

However, growth slowed in 2004 33

Yet secured lending is still outperforming other products 35

House price growth and low base rates have encouraged growth in recent years 38

Base rates have stayed low, making secured lending more affordable 39

Stable GDP growth has contributed to a healthy economy 40

Unemployment decreased again in 2004, meaning that affordability to repay debt is greater 40

More importantly, house prices have increased substantially in recent years 42

However, it is the second charge loans market and other qualitative factors that are driving secured lending forward 43

The second charge market now makes up 18.4 per cent of the total secured lending market in terms of gross advances 44

This growth has coincided with demand from the non-standard market 46

Despite increased competition from remortgages and unsecured personal loans, high debt levels mean that secured loans are being increasingly used as debt consolidation vehicles 52

Nevertheless, secured lending has managed to compete against unsecured loans, remortgaging and the potential threat of home collected credit providers 58

In addition, players in the market are actively targeting customers 64

CHAPTER 4 COMPETITIVE DYNAMICS 67

Introduction 67

The secured loan market is made up of two types of players 67

There are a small number of lenders in the secured loan market 68

The market began with a few specialist lenders, developing into a mainly non-standard market 68

Mainstream lenders have now come into the market 72

Halifax and GE are the largest secured loan providers 75

Most of the market is is made up of intermediaries 77

In fact, intermediaries accounted for £4.8 billion in personal loans in 2004 77

Customer focused traits are the primary factor which brokers use to decide which particular secured loan lender to deal with 80

Product functionalities and support for intermediaries also play an important role 82

IFAs are an untapped source of business 84

There are a range of strategies used to acquire customers 84

Pricing is one way of enticing custom 84

The secured loan market is associated with aggressive promotional tactics 87

Setting up an intermediary subsidiary can help to acquire more customers 92

Product innovation and differentiation tactics remain few and far between 93

CHAPTER 5 FORECASTING THE SECURED LENDING MARKET 96

Introduction 96

Datamonitor’s forecasting model 96

In Datamonitor’s view, secured lending will slow in 2005 but will return to growth the year after 99

As a result of these drivers, the secured lending market will account for £35.4 billion in 2009 102

The second charge loans market will continue to grow well 103

However, secured lending could be very different if economic factors change 105

An optimistic scenario forecasts a small dip in secured lending 2005 followed by substantial growth up to 2009 106

A pessimistic scenario forecasts further decline of the secured lending market 110

Lenders will also face a number of other challenges 114

Margins are slowly contracting 114

Regulation is changing the second charge market 115

The non-standard population is declining 120

Nevertheless, the secured loan market continues to be a highly attractive line of business to be in 122

CHAPTER 6 APPENDIX 123

Supplementary data 124

Sizing methodology 132

Research methodology 134

Forecasting methodology 134

Definitions 135

Relevant readings 138

Future readings 138

Relevant links 139

Datamonitor’s custom research capabilities 139

The retail banking team 140

How to contact experts in your industry 141





LIST OF TABLES

Table 1: Secured lending has grown very fast in the past decade, 1995-2004 32

Table 2: Gross advances for total secured personal loans split by non-standard and mainstream, 2000 - 2004 50

Table 3: An example of how Together works 60

Table 4: Examples of incentives offered by some lenders to encourage mortgage holders to switch lender, 2005 62

Table 5: There are an increasing number of remortgaging specialists in the non-standard market, 2005 63

Table 6: Value of secured loans arranged directly and indirectly, 2004 78

Table 7: A sample of lenders that have been in the market for the past five years highlights that prices have become increasingly competitive, May 2001- March 2005 85

Table 8: Typical APRs vary by lender, April 2005 86

Table 9: Top ten players by advertising spend, 2003-2004 89

Table 10: Percentage share of total advertising spend by channel, 2001-2004 92

Table 11: Forecasted gross advances for the secured lending market under Datamonitor’s scenarios, 2004-2009f 99

Table 12: Datamonitor’s forecast for the secured lending market, 2004-2009f 103

Table 13: Datamonitor’s forecast for the second charge loan market, 2003, 2004 and 2009f 104

Table 14: Forecasts for the secured lending market under the optimistic scenario, 2004-2009f 110

Table 15: Forecasts for the secured lending market under the pessimistic scenario, 2004-2009f 114

Table 16: Secured lending growth over the last five years, 2000-2004 124

Table 17: Average advance and volume of secured loans, 2000-2004 124

Table 18: Total unsecured consumer credit growth over the past five years, 2000-2004 125

Table 19: Secured and unsecured personal lending gross advances, 2000-2004 125

Table 20: Remortgaging and secured lending gross advances and index from 2000 to 2004 126

Table 21: Total UK ILO unemployed and claimant count, 1994-2004 126

Table 22: Average house prices and gross advances for secured lending, 2000-2004 127

Table 23: Typical APR for top ten unsecured loan and credit card providers, May 2005 127

Table 24: Typical APR for the top nine mortgage lenders and main secured loan lenders, May 2005 128

Table 25: Total advertising spend, 2001-2004 128

Table 26: Which of the following features are very important in your choice of number one lender? 129

Table 27: Top 20 secured loan brokers and lenders by advertising spend, 2003-2004 130

Table 28: Top 20 secured loan brokers and lenders share of secured loan advertising expenditure, 2003-2004 131

Table 29: Total advertising spend by secured loan specialist lenders, 2004 132

Table 30: Total advertising spend split by channel, 2001-2004 132





LIST OF FIGURES

Figure 1: Secured lending has grown at a very fast pace, particularly in the last five years, 1995-2004 4

Figure 2: Secured lending growth has vastly outpaced that of unsecured consumer credit, 2000-2004 5

Figure 3: The proportion of secured lending to the non-standard segment has remained overall constant, 2000-2004 7

Figure 4: In Datamonitor’s view, gross advances will increase to £35.4 billion in 2009, 2000-2009f 13

Figure 5: Secured lending has grown at a very fast pace, particularly in the last five years, 1995-2004 31

Figure 6: The average advance and number of secured loans have both increased in recent years, 2000-2004 33

Figure 7: 2004 saw the lowest rate of growth in secured lending over the past five years, 2000-2004 34

Figure 8: Secured lending growth has vastly outpaced that of unsecured consumer credit, 2000-2004 36

Figure 9: Over the last five years, secured lending has outperformed unsecured lending, 2000-2004 37

Figure 10: Even during the property market boom, secured lending has managed to grow faster than remortgaging, 2000-2004 38

Figure 11: While interest rates have risen over recent years, they remain at historically low levels, 1994-2004 39

Figure 12: ILO unemployment decreased to 1.25 million by the end of 2004, 2000-2004e 41

Figure 13: Both ILO unemployment and unemployment claimant count have been decreasing over the last ten years, 1994-2004 42

Figure 14: Demand for secured lending is directly related to house prices, 2000-2004 43

Figure 15: Second charge loans accounted for 18.4 per cent of total secured lending in 2004 45

Figure 16: The proportion of secured lending to the non-standard segment has remained constant overall, 2000-2004 49

Figure 17: Individuals who are self-employed or have a CCJ record account for two thirds of the secured loans market, 2004 52

Figure 18: Debt consolidation is the most common reason for taking out a secured loan, 2003 53

Figure 19: Debt consolidation as a reason for taking out a secured loan is growing in importance, 2003-2004 54

Figure 20: The average UK adult now owes £4,004 in unsecured personal debt, 1995-2004e 56

Figure 21: Secured loans are priced very competitively compared to other credit products on the market, 2005 57

Figure 22: Though having declined in 2004, advertising spend is still much higher than it was, 2001-2004 65

Figure 23: FIRSTPLUS’ website allows applicants to see what repayment options would fit best for them, 2005 71

Figure 24: Halifax leads in the secured loan market with an estimated market share of 20.0 per cent, 2004 76

Figure 25: 71. 0 per cent of secured loans are purchased through intermediaries, 2004 78

Figure 26: Customer-focused attributes are intermediaries’ highest priority when choosing a lender 81

Figure 27: Most intermediaries are generally happy with their main current lender 83

Figure 28: Loans.co.uk is the biggest player in terms of advertising spend on secured loans, 2004 88

Figure 29: FIRSTPLUS spent over £6.2 million in advertising its secured loans in 2004 90

Figure 30: Direct mail has become an increasingly important advertising channel for secured lending, 2001-2004 91

Figure 31: Gross advances under the three scenarios differ, 2000-2009f 98

Figure 32: The thinking process behind the neutral scenario envisions weaker growth up to 2009 than was achieved over the past five years 100

Figure 33: In Datamonitor’s view, gross advances will increase to £35.4 billion in 2009, 2000-2009f 102

Figure 34: In Datamonitor’s view, second charge loan advances will grow at an average of 10.5 per cent a year, 2003, 2004, 2009f 104

Figure 35: The thinking process behind the optimistic scenario envisions strong growth up to 2009 107

Figure 36: Under the optimistic scenario, gross advances increase significantly, 2000-2009f 109

Figure 37: The thinking process behind the pessimist scenario envisions a decline for two years, followed by very slow growth up to 2009 111

Figure 38: Under the pessimistic scenario, gross advances, the number of loans and the average advance drop in 2005 and pick up again slowly in 2007, 2000-2009f 113

Figure 39: Datamonitor’s core consulting capabilities 140
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