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UK Secured Personal Loans 2006
Description: The secured personal loans market had been a model of success. Both the markets pioneers and the lenders that flocked to the market in recent years enjoyed good margins and rapid growth. However, the mood has now changed and the market has contracted alarmingly in past year. This report examines the reasons for this downturn, the strategies of lenders and brokers and the outlook for the future. Scope of this title: -Quantifies the size of the UK secured personal loan market (second charge market). -Gives insight into the future challenges lenders and brokers will face. -Provides gross advances forecasts of the secured personal loan market up to 2010. -Discusses the attitudes of brokers and examines their strategies in the market. Highlights of this title: After expanding rapidly for a number of years, the secured personal loan market has struggled over the last two years. Indeed, since the markets 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 we 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 order your copy: -In-depth analysis of the secured loan market shows where the opportunities lie and hence, assists you in devising your business strategic plans. -By providing estimated market shares for the major players, it allows you to better plan your strategies. -Plan your strategy with confidence using our forecasts of the secured lending market up to 2010.
Contents:
Chapter 1 Introduction 11 Who is the target reader? 11 How to use this report 11 Chapter 2 Market context 13 Introduction 13 The secured personal loans market defined 13 After a number of years of strong growth, secured personal loan providers have experienced a tough market in the last two years 14 The secured personal loan market has contracted over the last two years 14 The latest figures from the FLA suggest that the market is still struggling to replicate its previous performance 15
Greater economic and housing market uncertainty has contributed to a slowdown in the secured personal loan market 16 Five consecutive interest rate rises in 2003 and 2004 did not help the secured personal loan market 16 House price growth has slowed in recent years, having a major impact upon the secured personal loans market 18 GDP growth in 2005 was disappointing 19 Unemployment is on the rise 19 Consumer spending has been falling 20 The retail car market has experinced a torid time of late 21 Can consumer spending recover? 21 A preference for other secured lending products has had a detrimental impact on the secured personal loans market 21 The secured personal loan market has performed badly in comparison to the remortgaging market as preferences change 22 The remortgaging market has outperformed the secured personal loans market in recent years 22 Providers have been keen to promote their remortgaging products, while product developments have made remortgaging more attractive 23 The further advance market has outperformed the secured personal loan market in recent years 26 Growth in the flexible mortgage market will be detrimental to the secured personal loan market 26 The secured and unsecured personal loans market are in competition but both have lost out in recent years 28 Both the secured personal loan and the unsecured personal loan markets have performed badly in recent years 28 Some secured personal loans offered by mainstream lenders are priced higher than their unsecured personal loan offering 30 Regulation is changing the secured personal loan market 31 Exclusion of secured personal loans under the FSA means that the market is regulated by the Consumer Credit Act 31 The Consumer Credit Act has reformed legislation that will greatly affect the secured personal loan market 32 The financial ceiling of regulated secured personal loans needs to be extended 32 The changes in early settlement charges favor customers 32 Payment protection insurance is now regulated by the FSA 33 There were problems with PPI before the implementation of new legislation 34 The OFTs Consumer Credit Advertisements Regulation 2004 means less confusion for consumers 34 These regulatory changes will lead to a more transparent secured loan market 35 A new trade body will improve the representation of secured personal loan providers 36 Chapter 3 Competitive dynamics 37 Introduction 37 While lenders are clearly important in the secured personal loan market, the market is dominated by brokers 37 Intermediaries account for the vast majority of loan originations 37 Intermediaries dominate the secured personal loans market for a number of reasons 39 Nevertheless, there are lenders that lend directly to customers 39 A few brokers control the intermediary channel 40 Profile: Central Trust acts as both a lender and a broker 40 Profile: Loans.co.uk was aquired by MBNA in 2005 42 Profile: Ocean Finance has achieved its success by targeting the sub-prime market 42 Profile: Capital One uses credit card terminology to segment its secured personal loans 43 Lenders believe that brokers suffer from a poor reputation 44 The number of brokers in the market is due to fall due to consolidation 44 IFAs are an untapped source of business 45 Lenders must understand the broker channel to maximise their secured personal loan business 45 The suitability and pricing of a secured personal loan is the primary concern for intermediaries when choosing a lender 46 The quality of service and support provided to intermediaries from lenders was also an important factor for intermediaries 47 Fees and commissions paid to intermediaries are the least important factors when an intermediary chooses a lender 47 The best way lenders can tempt an intermediary to offer their products is by offering better rates
and products in terms of features 48 Overall, intermediaries are happy with the service they get from their main lender 49 For more information... 51 Specialist lenders are now in a leadership position as Halifax steps back from the market 51 Market share data for 2005 shows that GE Money and HFC are the leading lenders 51 A couple of mainstream lenders have have taken a step back from the secured personal loan market 53 There are differing views regarding the future of mainstream lenders in the secured personal loan market 54 Having said this the market is by no means dead, as specialists have been looking to fill the gap 54 Profile: FIRSTPLUS targets consumers with good credit histories 55 Profile: Picture Financial will become a force in the secured personal loan market 55 Profile: Nemo Personal Finance has also been succesful since entering the market 56 Lenders and brokers use a range of strategies to aquire customers 58 The secured personal loans market has become more price competitive, but some of the reasons for this are dubious 59 Price competition in the secured personal loan market has led to rates falling over time 59 The "from rate" is more important than the typical APR 60 moneysupermarket.com allows companies to suggest lower rates to potential customers 61 Some mainstream lenders advertise artificially low APRs and then profit from commission from referrals to brokers 62 Aggressive advertising tactics are used to aquire customers in the secured personal loan market 63 Credit brokers are the biggest advertisers in the secured loans market 63 However, most secured personal loan providers have cut spending 65 Secured loan providers spent more on direct mail than any other form of advertising in 2005 67 Celebrity endorsement has been used in a bid to improve the image of secured personal loans 69 Some secured personal loans are often advertised as debt consolidation loans 69 Quality of service is important to retaining customers according to lenders and brokers 73 Products innovation has not been used to gain market share in the secured personal loan market 73 Chapter 4 Forecasting the secured personal loan market 78 Introduction 78 Our forecasting model 79 In our view, the secured personal loan market will rebound by the end of 2006 and will then continue to grow steadily afterwards 83 As a result of these drivers, the secured personal loan market will grow to £6.3 billion in 2010 86 However, the markets performance will change under different economic scenarios 87 An optimistic scenario forecasts a strong rise in the secured personal loan market up to 2010. 87 As a result of these drivers, the secured personal loan market will be worth £7.9 billion in 2010 90 A pessimistic scenario forecasts further decline of the secured personal loan market 91 As a result of these drivers, the secured lending market will fall to £3.8 billion in 2007 before recovering slightly to reach £4.3 billion in 2010 93 Chapter 5 Appendix 95 Supplementary data 96 Methodologies 102 Research methodology 102 Market sizing methodology 102 Forecasting methodology 103 Definitions 104 Bank of England base rate 104 Balances outstanding 104 CAGR 104 CCJ 104 Equity 104 First charge mortgages 104 Fixed rate mortgage 104 Flexible mortgage 105 Gross advances 105 IVAs (Individual Voluntary Arrangements) 105
Loan term 105 Loan-to-value (LTV) 105 Non-standard 105 Remortgaging 105 Secured personal loan 106 Self-certification mortgage 106 Tracker mortgage 106 Unsecured personal loan 106 Variable rate mortgage 106 Relevant readings 106 Reports 106 Future readings 107 Relevant links 107 Our custom research capabilities 108 The retail banking team 109 How to contact experts in your industry List of Tables Table 1: Examples of incentives offered by some lenders to encourage mortgage holders to switch lender, 2006 25 Table 2: Value of secured personal loans arranged directly and indirectly, 2005 38 Table 3: Typical APRs vary by lender, July 2006 60 Table 4: Top ten players by advertising spend, 2004-2005 65 Table 5: Percentage share of total advertising spend by channel , 2001-2005 68 Table 6: Economic forecasts used in Our forecasting scenario, 2005-2010f 80 Table 7: Forecasted secured personal loan gross advances under Our scenarios, 2005-2010f 82 Table 8: Secured personal loan growth, 1995-2005 96 Table 9: Bank of England base rate, 1995-2005 96 Table 10: Average house prices and the rate of change of house prices in the UK, 1995-2005 97 Table 11: Total UK ILO unemployed and those claiming unemployment benefits, 1996-2005e 97 Table 12: Unsecured personal loan gross advances, 2001-2005 97 Table 13: Remortgaging gross advances, 2001-2005 98 Table 14: Number of bankruptcies and IVAs in Wales and England, 2001-2005 98 Table 15: Outstanding balances on secured and unsecured retail lending on a per capita basis in the UK, 1996-2005 99 Table 16: How important are the following features in your choice of number one lender? 100 Table 17: What would tempt you to offer another competitors loans more often? 101 Table 18: Concentrating on your main lender, how happy are you with the following? 101 Table 19: Market share of leading lenders in the secured personal loan market, 2005 List of Figures Figure 1: The secured personal loan market has contracted over the last two years, 1995-2005 15 Figure 2: Rising interest rates between 2003 and 2004 coincided with the downturn of the secured personal loan market, 1995-2005 17 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 18 Figure 4: ILO unemployment increased in 2005, 2001-2005 20 Figure 5: Both the secured personal loan market and the remortgaging markets began contracting in 2004, 2001-2005 23 Figure 6: The proportion of flexible mortgage customers making use of payment holiday feature remains small, 2002-2005 27 Figure 7: Both the secured and unsecured personal loan markets have suffered in the past couple of years, 2001-2005 29 Figure 8: 71.5 per cent of secured personal loans are purchased through indirect channels, 2005 38 Figure 9: Debtbuster Loans website encourages Internet browsers to 41 Figure 10: The suitability of a products characteristics and its pricing are the most important attributes for intermediaries, 2006 46 Figure 11: The opportunity to offer better products to their customers is the main incentive for intermediaries to look at new lenders, 2006 49 Figure 12: Most intermediaries are generally happy with their main current lender, 2006 50 Figure 13: GE Money and HFC lead the secured personal loan market with a combined share of 34.2 per cent, 2005 52 Figure 14: Nemo Personal Finances website allows applicants to do a quick application that captures
their personal details, 2006 58 Figure 15: moneysupermarket.com is a way for lenders and brokers to gain exposure without having to observe advertising rules 62 Figure 16: Loans.co.uk is the biggest advertising spender in the secured personal loans market, 2005 64 Figure 17: Picture Financial is the biggest spending lender on secured personal loan advertising, 2005 67 Figure 18: Direct mail is the most important form of advertising for secured personal loans, 20012005 68 Figure 19: Debt consolidation is the most common reason for taking out a secured personal loan, 2003 70 Figure 20: Debt consolidation as a reason for taking out a secured personal loan is growing in importance, 2003-2004 71 Figure 21: Personal debt in the UK has been growing rapidly, 1996-2005 72 Figure 22: Gross advances under the three forecast scenarios differ, 2001-2010f 82 Figure 23: The thinking process behind the neutral scenario envisions weaker growth up to 2010 than was achieved in the previous five years 84 Figure 24: In Our view, gross advances will increase to £6.3 billion in 2010, 2001-2010f 86 Figure 25: The thinking process behind the optimistic scenario envisions strong growth up to 2010 88 Figure 26: Under the optimistic scenario, secured personal loan gross advances increase rapidly, 2001-2010f 90 Figure 27: The thinking process behind the pessimist scenario envisions a decline for two years, followed by very slow growth up to 2010 91 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 94
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