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Overview of UK Non-standard and Sub-Prime Lending 2005

Product Type: Market Research Report
Published by: Datamonitor
Published: May 2005
Product Code: R313-8498
Description
Introduction
In recent years the British economy has experienced a period of a relatively strong uninterrupted growth, and the majority of bad debt indicators are historically low. What impact have these developments had on the size of the UK non-standard population? Datamonitor's Overview of the UK non-standard and sub-prime lending 2005 report provides the answers.

Scope
Sizes the UK non-standard population
Discusses the key economic factors driving the non-standard population in the UK
Assesses social factors and government initiatives that have impacted the non-standard population
Provides three scenario-based forecasts for the UK non-standard population to 2009
Highlights
Macro-economic conditions are the underlying and the most important driver of the non-standard population. But they are not an instantaneous driver there is typically a time lag between peaks and troughs in GDP and peaks and troughs in the non-standard population.

According to Datamonitor estimates, there were just over 2m people aged between 18 & 59/64 without a bank account in the UK in 2004. This number, however, would be considerably higher if all age groups were included, because the youngest (16-17) and the oldest (65+) groups account for a relatively substantial proportion of unbanked population.

The impact of the Government's initiatives, such as Saving Gateway, on non-standard lenders will very much depend on if and when the scheme is rolled out nationwide. It is possible to foresee, however, that the Saving Gateway may eventually lessen reliance on non-standard motor finance and other forms of non-standard lending.

Reasons to Purchase
Identify and evaluate macroeconomic drivers that affect the non-standard population in the UK
Gain a thorough understanding of social factors affecting non-standard lending in the UK
Plan your overall business strategy with confidence using Datamonitor's macroeconomic forecasts for the non-standard population
Table of Contents
TABLE OF CONTENTS

CHAPTER 1 EXECUTIVE SUMMARY 3

Introduction 3

Sizing the UK non-standard population in 2004 3

The non-standard population continues to decline 3

Drivers behind the non-standard population 4

Underlying macro-economic factors ultimately drive the non-standard population 4

Social trends also play a key role in driving the non-standard population 11

Government initiatives to tackle financial exclusion 14

Forecasting the non-standard population to 2009 16

According to Datamonitor’s neutral forecasting scenario, the non-standard population will decline to 8.79 million by 2009 17

CHAPTER 2 INTRODUCTION 30

What is this report about? 30

Who is the target reader? 33

How do you use this report? 33

CHAPTER 3 SIZING THE UK NON-STANDARD POPULATION IN 2004 34

Introduction 34

Defining the non-standard population 34

Lending products: altering the dynamics of demand and supply 34

Subjectivity is a necessary evil 35

Alternative commonly used terms 36

Sub-prime is a segment of non-standard 37

Report coverage: age and affordability 38

A bit of background behind financial exclusion in the UK 39

Financial exclusion is a real problem for society 39

Sizing the UK non-standard population 42

The non-standard population continues to decline 42

The non-standard population continues to decline despite the UK population increasing 42

Datamonitor’s non-standard population sizing methodology 44

A few factors account for the majority of the non-standard population 49

CHAPTER 4 DRIVERS BEHIND THE NON-STANDARD POPULATION 53

Introduction 53

Underlying macro-economic factors ultimately drive the non-standard population 53

A time lag exists between GDP and the non-standard population 53

Unemployment trends feed directly into the non-standard market 57

Interest rates play a pivotal role in driving the non-standard population 65

Mortgage arrears and repossessions continue to decline as a result of low base rates 68

The number of CCJs on record continues to fall as the cost of borrowing declines 71

Personal bankruptcies hit record high 74

Social trends also play a key role in driving the non-standard population 77

The number of unbanked individuals has declined, helped, in part, by the Universal Banking Services scheme 77

The Government’s Universal Banking Services initiative is aimed at tackling the issue of the unbanked population 83

Self-employment levels continue to move upwards 88

The number of income support recipients has fallen 92

Government initiatives to tackle financial exclusion 94

Promoting financial literacy to tackle causes rather than consequences 95

Encouraging savings among disadvantaged households 96

Offering alternative borrowing solutions for those in need 101

Assisting individuals encountering debt problems 105

CHAPTER 5 FORECASTING THE NON-STANDARD POPULATION TO 2009 109

Introduction 109

Forecasting the non-standard population to 2009 109

Datamonitor’s forecasting methodology explained 109

According to Datamonitor’s neutral forecasting scenario, the non-standard population will decline to 8.79 million by 2009 111

Under the optimistic scenario, the non-standard population will drop to 7.9 million by 2009 115

Under a pessimistic scenario the non-standard population will reach 9.28 million by 2009 119

CHAPTER 6 APPENDIX 124

Supplementary data tables 125

Data tables relating to Chapter 4 Drivers behind the UK Non-standard Population 125

Data tables relating to Chapter 5 Forecasting the UK Non-standard Population to 2009 131

Further information 132

Datamonitor’s research methodology 132

Definitions 132

Relevant links 134

Relevant Datamonitor research publications 135

Datamonitor’s custom research capabilities 135

The retail banking team 137

How to contact experts in your industry 137



LIST OF TABLES

Table 1: Income support claimants, 2000-2004 14

Table 2: Number of people defined as non-standard compared to standard population, 2000-2004e 41

Table 3: Detailing the adjustment made to Datamonitor’s non-standard population figures reported in this year’s report compared to last year’s edition, 1998-2003 47

Table 4: Drivers of the non-standard population, 2000-2004e 50

Table 5: Number of mortgage repossessions and arrears, 2000-2004e 68

Table 6: Major factors that account for the existence of unbanked individuals 76

Table 7: Self-employment by industry sector, 2000-2004 89

Table 8: Income support claimants, 2000-2004 91

Table 9: Forecasted macroeconomic and social drivers behind the size of the non-standard population - Datamonitor’s neutral scenario, 2004-2009f 112

Table 10: Forecasted performance of the non-standard population’s drivers under the optimistic scenario, 2004-2009f 116

Table 11: Forecasted performance of the non-standard population’s drivers under pessimistic scenratio, 2004-2009f 120

Table 12: Indexed drivers behind the size of non-standard population, 1990-2004e 123

Table 13: Total UK ILO unemployed and those claiming unemployment benefits, 1994-2004 124

Table 14: UK employment by industry, 1994-2004 124

Table 15: Duration of unemployment by age groups, 2000 & 2004 125

Table 16: The proportion of economically active people aged 16-59/64, 1994-2004 125

Table 17: ILO unemployed by age groups, indexed 1994=100, 1994-2004 126

Table 18: Number of arrears and repossession on record, 1995-2004 127

Table 19: Self-employed by gender, 1994-2004 127

Table 20: Self-employment and proportion of all in employment by gender, 2000-2004 128

Table 21: The growth of average DMP debt, average earnings, ILO unemployment rate and repayment difficulty index, indexed 1999=100, 1999-2004 128

Table 22: UK Non-standard population forecasts according to Datamonitor’s neutral scenario, 2004-2009f 129

Table 23: UK Non-standard population forecasts according to Datamonitor’s optimistic scenario, 2004-2009f 129

Table 24: UK Non-standard population forecasts according to Datamonitor’s pessimistic scenario, 2004-2009f 130

Table 25: Relevant Datamonitor publications 133





LIST OF FIGURES

Figure 1: The UK non-standard population continues to decline, falling to an estimated 9.1 million in 2004, 200-2004e 4

Figure 2: There was a large time lag between the trough in GDP and the corresponding peak in the non-standard population following the last recessions, 1990-2004e 5

Figure 3: A recession takes time to filter through to unemployment, CCJs, mortgage arrears and repossessions, 1990-2004e 6

Figure 4: ILO unemployment decreased to 1.25 million by the end of 2004, 2000-2004e 7

Figure 5: While the interest rates have risen over recent years, they remain at historically low levels, 1994-2004 8

Figure 6: The number of properties with mortgage problems has been declining steadily since the peak of 1992, 1990-2004 9

Figure 7: Since the peak in CCJs in the early 1990s, the number of CCJs registered has fallen considerably, 1994-2004e 10

Figure 8: As the economy recovered from the last recession, personal bankruptcies declined. However, this trend reversed in 1999 and personal bankruptcies have gradually increased ever since, 1994-2004 11

Figure 9: Not only has the self-employed population increased, but also the percentage of the workforce that is self-employed, 00-04 13

Figure 10: According to Datamonitor’s neutral forecast, the non-standard population will decline to 8.79 million by 2009, 2004-2009f 17

Figure 11: Datamonitor covers the non-standard and sub-prime lending market in 2005 with a suite of three published reports 32

Figure 12: Datamonitor’s definition of non-standard 35

Figure 13: A certain degree of subjectivity is needed in a definition of the non-standard population because some mainstream lenders are inevitably willing to accept greater risk than others 36

Figure 13: Common terms used to refer to the circumstance defined by Datamonitor as “non-standard” 37

Figure 14: Sub-prime consumers represent a segment of the non-standard population 38

Figure 15: The UK non-standard population continues to decline, falling to an estimated 9.1 million in 2004, 200-2004e 42

Figure 16: The proportion of people defined as non-standard has fallen over the past five years, 2000-2004e 43

Figure 17: Ordinal ranking of non-standard drivers highlights long term dominance of self-employment, 1995-2004 50

Figure 18: There was a large time lag between the trough in GDP and the corresponding peak in the non-standard population following the last recession, 1990-2004e 54

Figure 19: A recession takes time to filter through to unemployment, CCJs, mortgage arrears and repossessions, 1990-2004e 55

Figure 20: A simplified example of a household’s repayment hierarchy helps to explain why CCJs resulting from consumer credit defaults peak before mortgage arrears and repossessions 57

Figure 21: ILO unemployment decreased to 1.25 million by the end of 2004, 2000-2004e 58

Figure 22: Both, ILO unemployment and unemployment claimant count have been decreasing over the last ten years, 1994-2004 59

Figure 23: The number of people employed in the UK service sector has continued to grow as manufacturing jobs have contracted, 1994-2004 60

Figure 24: Total ILO unemployment has declined over the past five years mainly as a result of the longer-term unemployed coming back to the labor market, 2000-2004e 62

Figure 25: ILO unemployment duration by age, 2000 and 2004 63

Figure 26: The proportion of women entering the labor market has increased in recent years, though it still falls far behind male employment, 1994-2004 64

Figure 27: While the actual number of unemployed 16-17 year olds is relatively small, it has been rising quicker than other categories in recent years, 1994-2004 65

Figure 28: While the interest rates have risen over recent years, they remain at historically low levels, 1994-2004 66

Figure 29: Falling base rates have been mirrored by declining repossessions, mortgage arrears and CCJs, 1994-2004 67

Figure 30: Unlike personal loans and credit cards, mortgage interest rates closely mirror the Bank of England’s base rate, Jan-00 - Jul-04 68

Figure 31: The number of properties with mortgage problems has been declining steadily since the peak of 1992, 1990-2004 69

Figure 32: Arrears and repossessions on record are declining rapidly from their peak in the mid 1990s, 1995-2004 71

Figure 33: Since the peak in CCJs in the early 1990s, the number of CCJs registered has fallen considerably, 1994-2004e 72

Figure 34: More than 1.8 million CCJs were registered in 1991 leading to a peak in CCJs on record in 1995 of almost 8.5 million 73

Figure 35: As the economy recovered from the last recession, personal bankruptcies declined. However, this trend reversed in 1999 and personal bankruptcies have gradually increased ever since, 1994-2004 74

Figure 36: The proportion of self-employed people filing for bankruptcy has declined while the proportion of employed and unemployed people filing for bankruptcy has increased, 2000 & 2004 76

Figure 37: The unemployed, housewives and students are the most likely groups to be unbanked, 2004 81

Figure 38: DE individuals are by far the most likely socio-economic group not to have a current or savings account, 2004 82

Figure 39: Unsurprisingly, younger individuals are more likely to be unbanked than other age groups, 2004 83

Figure 40: Since April 2003, a net of 1,184,579 basic bank accounts have been opened, April 2003-December 2004 87

Figure 41: The number of people self-employed has remained relatively flat over the last decade, although self-employment has risen rapidly in recent years, 1994-2004 89

Figure 42: Not only has the self-employed population increased, but also the percentage of the workforce that is self-employed, 00-04 90

Figure 43: Long-term claimants account for the bulk of income support, 2000-2004 94

Figure 44: CAB has experienced a 74 per cent in consumer debt enquiries since 1996, 1996-2004 106

Figure 45: According to CCCS, average DMP debt has been rising at a greater rate than average earnings, 1999-2004 107

Figure 46: According to Datamonitor’s neutral scenario, performance of the key drivers will result in declining size of the non-standard population over the next five years 112

Figure 47: According to Datamonitor’s neutral forecast, the non-standard population will decline to 8.79 million by 2009, 2004-2009f 115

Figure 48: Under the optimistic scenario the performance of key drivers will have a negative impact on the size of the non-standard population in the UK over the next five years 116

Figure 49: Under a more optimistic scenario, non-standard population in the UK is forecasted to fall to 7.95 million by 2009, 2004-2009f 119

Figure 50: Under the pessimistic scenario, difficult economic conditions and a weakening labor market will result in an increasing number of non-standard individuals 120

Figure 51: Average personal debt growth has outstripped average earnings growth over the past four years, 2000-2004 121

Figure 52: According to Datamonitor’s pessimistic scenario, the UK non-standard population is forecasted to reach 9.28 million by 2009, 2004-2009f 123

Figure 53: Datamonitor’s core consulting capabilities 136
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