New research by market analysts Datamonitor reveals that borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans (by UK consumers has risen to £4,004 per average UK adult at the end of 2004.
This figure translates into a 10% increase on the previous year’s levels and a 45% increase since 2000. Despite several interest rate increases and the general uncertainty about the current state of the housing market, the consumer credit market continues to grow at healthy speed, says Datamonitor.
“One of the major reasons behind this strong performance is the fact that the majority of bad debt indicators, such as unemployment, records of mortgage arrears and repossessions and county court judgments remain at their historically low levels,” says Oksana Selezneva, Datamonitor financial services analyst and author of the report. “This has given consumers the confidence to keep on borrowing and the ability to cope with their debt repayments relatively well.”
Consumers have continued to borrow with gusto in 2004 despite several increases in the Bank of England’s base rate and the uncertainty surrounding house prices. An average UK adult now owes £4,004 in unsecured personal debt. Of this, £1,302 is outstanding on credit cards, £1,892 in unsecured personal loan balances and the remaining £812 on overdrafts and motor and retail finance deals.
Credit cards continue to dominate the market, accounting for £119.2 billion of the total new consumer credit business written in 2004.
Unsecured personal loans recovered from the slump of 2003 and returned to growth, with new business in this category reaching £62.9 billion. This recovery is in part due to the competitive impact of secured lending which in 2004 was not as strong and in fact has slowed quite considerably.
Car purchase was the main reason why customers took out an unsecured personal loan in 2004, spending an estimated £21.4 billion for this purpose. Other popular reasons for consumers taking out unsecured personal loans include debt consolidation and for home improvements.
Having an existing current account is still the most popular reason why customers opt for one unsecured personal loan provider rather than the other. In addition, more people are picking their loan provider on the basis of competitive interest rate and previous relationship in the form of a loan taken out before. At the same time, less people place importance on convenience of arranging a loan when choosing a provider.
The impressive growth of the consumer credit market over the past few years has been supported by the relatively benign economic conditions, strong consumer spending and surging house prices. However, many industry insiders now agree that a similar performance is unlikely to continue into the future. What seems to be the recent turn-around in the housing market underlines this assumption. As such, Datamonitor forecasts the growth of the consumer credit market to slow down to 4.7 per cent on average per annum to 2009.
UK Personal Lending 2005 examines the consumer credit market, providing five-year scenario based forecasts, impartial market assessment, customer information and competitor intelligence. It builds upon a host of primary interviews with key individuals in the industry and a wealth of data sources, including MORI Financial Services consumer survey, to provide an insightful and balanced view of the consumer credit market in the UK.
The corresponding figure for gross advances per person for 2004 in the UK is £4,750.