The UK Consumer Credit Market in 2006 and Future Outlook (Market Focus)

Following a muted performance in 2005, the consumer credit market delivered a worse performance in 2006. Indeed, after more than a decade of strong growth, the consumer credit market has now slowed. Moreover, the majority of individual product lines performed badly over the year. So what's in store for the consumer credit market over the next five years?

Report Highlights


Constrained by various factors such as a weaker labor market, increasing consumer debts and low consumer confidence, gross lending amounted to £207.8 billion at the end of December 2006, representing a contraction of 4.5 per cent on the 2005 level (£217.5 billion). Unsecured personal loans and credit cards remain the dominant products in the consumer credit market in terms of balances outstanding. However, credit cards lost share over 2006 as a result of its poor performance and its share now stands at 26.2 per cent, while personal loans continued to gain market share, standing now at 56.6 per cent. Though the consumer credit market suffered over 2006, it has nevertheless seen significant growth over the last decade. Yet motor and retail finance have been exceptions to the rule, with both product lines slowly losing market share to direct lending. Indeed, over the last few years a number of leading financiers have exited the POS market.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The consumer credit market delivered a poor performance in 2006 2
Advances dropped once again, though balances grew by a small degree 2
A number of factors can be attributed to the consumer credit market's poor performance 3
Despite a well performing UK economy in 2006, the consumer credit market did not follow suit 3
Successive base rate rises had a slowing effect on borrowing over 2006 4
Despite full employment, unemployment increased slightly over 2006, contributing to the consumer credit market's contraction 5
Though the housing market outperformed expectations in 2006, the consumer credit market still faltered 5
Further analysis highlighted that most individual product lines performed badly over 2006 6
In terms of balances outstanding, most products contracted except for retail finance and personal loans 6
Fluctuations in the share of the total consumer credit market show personal loans to have gained significantly 8
In terms of gross advances, all consumer credit products contracted except for overdrafts 9
Fluctuations in performance saw credit cards and overdrafts gain more share of the total consumer credit market 11
Meanwhile, point of sale finance continued to struggle 13
Motor finance had another poor year in 2006 13
Retail finance also had another poor year in 2006 18
What's next for the consumer credit market? 21
Datamonitor's forecasting model assesses the relationship of macroeconomic factors with respect to consumer credit products 21
Under the neutral view, new lending in the consumer credit market falls in 2007 and picks up thereafter 21
The consumer credit market will reach £229.4 billion in 2011 23
In terms of individual product lines, virtually all products will suffer in 2007 but will pick up thereafter 23
Under a pessimistic view of the economy, the consumer credit market will contract significantly in 2007 before picking up again in 2008 25
The consumer credit market will dip to a low of £199.8 billion in 2007 under a pessimistic scenario 26
In terms of individual product lines, retail and motor finance both continue their decline, with overdrafts performing best of all 26
Under an optimistic view of the economy, the consumer credit market will begin prospering again 28
The consumer credit market will expand at an annual average rate of 3.0 per cent to reach £238.1 billion in 2011 29
In terms of individual product lines, retail finance will be the only underperforming product 29
APPENDIX 31
Supplementary data 31
Methodology 31
Forecasting methodology 31
Choice of economic variables 32
Model outputs 32
Bespoke scenario based forecasting 32
Definitions 32
General definitions 32
Bank of England base rate 32
Balances outstanding 32
CAGR 33
Consumer credit 33
Gross advances 33
Overdraft 33
Definitions of point of sale motor and retail finance products 33
Motor finance products available at the point of sale 34
Retail finance products available at the point of sale 35
Further reading 36
European consumer credit reports 36
UK consumer credit reports 37
UK consumer credit briefings 37
Forthcoming consumer credit briefings 37
Relevant links 38
Ask the analyst 38
Datamonitor consulting 38
Disclaimer 38

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Table 1: Balances outstanding and gross advances in the consumer credit market, 2002-2006 3
Table 2: Consumer credit balances outstanding by product, 2002-2006 7
Table 3: Market share of consumer credit balances outstanding by product line, 2002-2006 9
Table 4: Consumer credit gross advances split by product, 2002-2006 10
Table 5: Market share of gross advances in the consumer credit market by product line, 2002-2006 12
Table 6: New and used car POS motor finance balances outstanding, 2002-2006 14
Table 7: New and used car POS motor finance gross advances, 2002-2006 16
Table 8: New car finance gross advances by product line, 2002-2006 17
Table 9: Used car finance gross advances by product line, 2002-2006 17
Table 10: Retail finance balances outstanding by product line, 2002-2006 19
Table 11: Retail finance gross advances by product line, 2002-2006 20
Table 12: Forecast performance of the consumer credit market drivers under the neutral scenario, 2005-2011f 22
Table 13: Consumer credit forecasts under a neutral view of the economy, 2006-2011f 24
Table 14: Forecast performance of the consumer credit market drivers under the pessimistic scenario, 2005-2011f 25
Table 15: Consumer credit forecasts under a pessimistic view of the economy, 2006-2011f 27
Table 16: Forecast performance of the consumer credit market drivers under the optimistic scenario, 2005-2011f 28
Table 17: Consumer credit forecasts under an optimistic view of the economy, 2006-2011f 30
Table 18: 12 month year-on-year change in UK house prices, January 2002-December 2006 31


Figure 1: Advances dropped by 4.5 per cent in 2006, though balances grew by a small amount, 2002-2006 2
Figure 2: Consumer confidence continued to fall through 2006, May 2004 -December 2006 4
Figure 3: The housing market performed significantly above expectations in 2006, January 2002-December 2006 6
Figure 4: Unsecured personal loans experienced the strongest growth over the last five years, 2002-2006 7
Figure 5: Unsecured personal loans have gained an extra share of 6.8 per cent in the last five years while credit cards, motor and retail finance have all lost share, 2002-2006 8
Figure 6: Except for overdrafts, new lending on all consumer credit products suffered from a poor performance in 2006, 2002-2006 10
Figure 7: Credit cards and overdrafts have gained share while unsecured personal loans have lost share, 2002-2006 12
Figure 8: The share of used car finance within the motor finance market declined slightly in 2006, 2002-2006 14
Figure 9: Gross lending in both the new and used car finance markets declined in 2006, 2002-2006 15
Figure 10: Reversing the trend somewhat, two of three retail finance product lines saw growth in balances outstanding over 2006, 2002-2006 18
Figure 11: Gross advances for all product lines within retail finance have followed a downward trend since 2004, 2002-2006 20
Figure 12: The consumer credit market will steadily increase and reach £229.4 billion in 2011f, 2006-2011f 23
Figure 13: Under the pessimistic scenario, the consumer credit market will drop to a low of £199.8 billion in gross advances in 2007, 2006-2011f 26
Figure 14: Under an optimistic view of the economy, the consumer credit market will grow very strongly over the next five years, 2006-2011f 29
Figure 15: Point of sale product aggregations used within this briefing 34

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