Apex Insight releases new UK consumer credit forecasts

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Latest forecasts from Apex Insight suggest that UK unsecured consumer credit will return to growth over the next few years.

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Apex Insight expects a return to modest growth in unsecured credit over the next few years but at a rate below that of 2006-08.

UK consumer credit now stands at almost £1.5 trillion. Most of this is mortgage lending with unsecured credit – mainly overdrafts, personal loans and credit card balances – being almost £160bn. This represents an average of £54,000 of lending per household including £6,000 of unsecured credit.

Apex Insight - Consumer Credit Forecasts are for a return to modest growth in unsecured credit over the next few years at a rate below that experienced from 2006-08. In particular, growth in lending will be encouraged by strengthening of the recovery in GDP; modest wage growth below the rate of inflation increasing the need for credit on the part of consumers who are creditworthy but see costs rising faster than incomes; increase in the numbers of people who are in work and who are therefore likely to be in a position to borrow from mainstream sources and significant improvements in consumer confidence supporting increased retail sales spending and further growth in larger purchases such as new cars and home improvements.

Apex Insight believes that most lenders will continue to be relatively cautious in their approach and that interest rates on consumer credit will therefore remain high relative to base rates for the next couple of years. Nevertheless, the Bank of England Credit Conditions Survey findings do support some increase in the level of lending.

A critical point will be when the Bank of England decides to increase interest rates It has signalled that this will come when unemployment falls to 7.0%, which it expects to happen in 2016 – although market expectations appear to be for an earlier rise, in 2015. When this happens, lenders may decide that, rather than increasing their rates in parallel, they believe the recovery is strong enough to allow a more liberal approach.

The housing market presents some specific uncertainty with many economists and property professionals believing that the government’s Help-to-Buy scheme will cause it to overheat in the short term. This may stimulate activity and demand for credit by improving consumer confidence but, if it does, this will increase the risk of a correction if a change of policy follows the 2015 election. Another possible impact of a rise in house prices is a return to widespread use of equity release, rather than unsecured credit, to fund consumer spending. Apex Insight’s forecast assumes that there is not a significant spike in house prices arising from this policy but note it as a risk.

Market conditions and mainstream lender interest rate policies are likely to continue to be favourable for alternative lenders, such as peer-to-peer lending platforms and high-cost credit providers like payday loans companies. We believe that the market opportunity for these lenders largely arises from the current conservative approach of the mainstream lenders. Alternative lenders are exploiting the market opportunity by innovating their business models and bringing out new products to better target customer segments which they see as not well served. However, for the next couple of years at least, these sources will remain a small proportion of overall lending hence will have only a limited impact on the market as a whole. In the longer term, they may lead to changes in the market which help to address some of the supply limitations arising from the UK’s relatively homogenous and concentrated banking sector.

The full report, Apex Insight Consumer Credit Forecasts, is available from apex-insight.com/research.

About Apex Insight

Apex Insight is an independent provider of research, analysis and consulting services covering business services markets in the UK and Europe. It has recently published market reports covering sectors including Peer-to-Peer Lending, Debt Purchase and Debt Collection, Consumer Debt Solutions, Internet Payday Lending, Pawnbroking, Home Credit and Rent-to-Buy Retail.

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