Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Market Focus 2
Secured personal loans are secured against a borrower's property 2
Secured personal loans are generally taken out by customers with existing mortgages 2
The UK secured personal loans market performed well in 2006 2
After a difficult year in 2005, the market turned a corner in 2006 2
Sub-prime lending accounted for over a third of loans advanced in 2006 3
A strong housing market was key to the market's turnaround in 2006 4
Yet a number of products continue to compete against secured personal loans 4
In fact, the market is now at a crossroads in its development 4
Competitor Focus 4
The market is made up of two types of player 4
Specialist lenders dominate, but there will be greater involvement from mainstream lenders 5
Halifax, Picture Financial and GE Money Home Lending lead the market 5
Moreover, the market is becoming more competitive 6
But a number of lenders have withdrawn from the market amid the global credit crunch 6
On the distribution side, brokers nevertheless control the market 7
Intermediaries continue to account for the vast majority of loan originations 7
Lenders must therefore understand intermediaries in order to maximize business 8
Market Forecast 9
Datamonitor believes that the secured personal loans market portrays an encouraging future 9
Under the Datamonitor View scenario, the secured personal loans market will reach £10.2 billion in 2011 9
Conclusions 9
Table of Contents 11
Table of figures 12
Table of tables 13
Market Focus 14
Secured personal loans are secured against a borrower's property 14
Secured personal loans are generally taken out by customers with existing mortgages 14
The UK secured personal loans market performed well in 2006 14
After a difficult year in 2005, the market turned a corner in 2006 14
The latest figures from the FLA suggest the market has continued to do well into 2007 15
Sub-prime lending accounted for over a third of loans advanced in 2006 15
Still, the secured personal loans market remains small compared to other lending markets 16
A strong housing market was key to the market's turnaround in 2006 17
Resurgent house price growth acted as a stimulus to the market 17
House price growth has been strong so far in 2007, which will boost the secured personal loans market 18
Because secured loans are used as a debt consolidation tool, unsecured debt is also a driver of the market 18
Other macroeconomic factors have contributed to the market's performance 19
GDP growth picked up in 2006 19
Successive increases in the base rate have encouraged more consumers to consolidate their loans 19
Unemployment remains low 19
UK consumer spending improved during 2006 19
Yet a number of products continue to compete against secured personal loans 20
Remortgaging and further advances are major competitors of secured personal loans 20
Flexible mortgages are an increasingly competitive threat 20
Unsecured personal loans continue to be a strong competitor 21
Yet unsecured personal loans may become less competitive in an environment of rising interest rates 22
IVAs and DMPs are a small competitive threat 22
Greater education is necessary to ensure consumers take out these plans for the right reasons 22
In fact, the market is now at a crossroads in its development 23
The market's reputation is gradually improving 23
Impending regulatory change awaits and will have significant effects on the market 24
The market is regulated by the OFT, whereas the mortgage market is regulated by the FSA 24
In a positive step forward, all secured loans will be regulated by the OFT from April 2008 25
Yet the changes in early settlement charges that favor customers constrain lenders 25
European regulation could mean the market may become regulated by the FSA, but this is still some way off 26
The industry is awaiting the outcome of the Competition Commission's investigation into PPI 26
In addition, a new association was created to represent brokers in the market 27
Competitor Focus 28
The market is made up of two types of player 28
Specialist lenders dominate, but there will be greater involvement from mainstream lenders 28
Halifax, Picture Financial and GE Money Home Lending lead the market 28
Some mainstream lenders, including Halifax, have pulled out of the market in recent years 29
Halifax's exit will greatly affect the market 30
Yet Datamonitor believes that a number of mainstream lenders will enter the market over the next couple of years 30
Alliance & Leicester entered the market to capitalize on unsuccessful unsecured personal loan applicants 31
But lenders will need to ensure they do not cannibalize their other product offerings 31
There are now more lenders in the market than ever before 32
Advantage entered the market in June 2007 32
Breeze Loans entered the market in October 2006 33
Some investment banks have also entered the lending space 33
Moreover, the market is becoming more competitive 33
Price competition has increased as a result of the large number of competitors in the market 33
The intermediary channel in particular has become more competitive for lenders 35
Aggressive advertising continues to be a method of customer acquisition, although it has decreased 35
Innovation is nonetheless still lagging behind price in terms of importance and development 39
But a number of lenders have withdrawn from the market amid the global credit crunch 39
Kensington Personal Loans entered the market in 2006, but has since withdrawn temporarily 40
GMAC-RFC has abandoned its plans to enter the secured personal loans market in April 2008 40
Lehman Brothers closed down LMC and SPPL as it intends on a global restructure 40
On the distribution side, brokers nevertheless control the market 41
Intermediaries continue to account for the vast majority of loan originations 41
The market's historical non-standard and small nature are key to the high participation by brokers 42
Brokers that advertise the most tend to be the market leaders in the intermediary channel 43
Many brokers reduced their advertising expenditure over 2006 44
A number of changes are occurring within the intermediary market as competition intensifies 45
All types of Intermediaries are becoming more involved in the secured personal loans market 45
Some brokerages nevertheless have fared less well 45
A significant number of large brokerages have been bought up in recent years 46
Lenders must therefore understand intermediaries in order to maximize business 46
Competitive pricing and product suitability are most important to intermediaries when choosing a lender 46
Quick decisions on a loan application have become more important to intermediaries since last year 47
A wide lending criteria has also become more important to intermediaries since last year 47
Fees and commissions paid to intermediaries are the least important factors for intermediaries 48
Brokers can be tempted to choose other lenders by better pricing and faster turnarounds 48
Market Forecast 50
Datamonitor's forecasts consist of three different scenarios 50
Datamonitor uses three different scenarios of the UK economy 50
Datamonitor's bespoke forecasting model also considers drivers specific to secured personal loans 51
Datamonitor believes the secured personal loans market portrays an encouraging future 52
Under the Datamonitor View scenario, the secured personal loans market will reach £10.2 billion in 2011 52
Conclusions 54
APPENDIX 55
Supplementary data 55
Definitions 58
Bank of England base rate 58
Balances outstanding 58
CAGR 58
CCJ 58
First charge mortgages 58
Flexible mortgage 58
Gross advances 59
Individual voluntary arrangement (IVA) 59
Loan term 59
Loan-to-value (LTV) 59
Non-standard 59
Remortgaging 59
Secured personal loan/second charge mortgage 59
Unsecured personal loan 59
Methodology 60
Forecasting methodology 60
Further reading 60
Ask the analyst 61
Datamonitor consulting 61
Disclaimer 61
List of Tables
Table 1: Top nine lenders by secured personal loans advertising spend, 2005-06 37
Table 2: Share of secured personal loans advertising spend by medium, 2002-06 39
Table 3: Value and proportion of secured personal loans arranged directly and indirectly, 2006 42
Table 4: Top ten brokers by secured personal loans advertising spend, 2005-06 (£) 44
Table 5: Economic forecasts used in Datamonitor's forecasting model, 2006-11 51
Table 6: Secured personal loan gross advances under the three forecast scenarios, 2002-11 (£m) 53
Table 7: Secured personal loans gross advances and annual house price growth, 1997-2006 55
Table 8: Market shares of the leading lenders in the secured personal loans market, 2006 56
Table 9: Average secured personal loans price differential between the average typical APR and the Bank of England base rate, August 2003-August 2007 (%) 56
Table 10: How important are the following features in your choice of number one lender? 57
Table 11: How important are the following in tempting you to offer another competitor's loans more often? 57
Table 12: Secured personal loans advertising spend by media, 2002-06 (£m) 58
List of Figures
Figure 1: The secured personal loans market performed well in 2006 3
Figure 2: Halifax, Picture Financial and GE Money Home Lending lead the secured personal loans market in terms of gross advances in 2006 6
Figure 3: In terms of distribution, intermediaries accounted for over 65 per cent of all secured personal loan gross advances in 2006 8
Figure 4: In Datamonitor's View, the secured personal loans market portrays an encouraging future to 2011 9
Figure 5: The secured personal loans market performed well in 2006 15
Figure 6: Sub-prime lending accounted for a sizeable proportion of secured personal loan gross advances in 2006 16
Figure 7: The significant rise in house prices in the last 10 years has been crucial to the growth of the secured personal loans market, 1997-2006 18
Figure 8: Halifax, Picture Financial and GE Money Home Lending led the secured personal loans market in terms of gross advances in 2006 29
Figure 9: An increasing number of lenders have entered the market in the last few years 32
Figure 10: Secured personal loan price competition has increased in the last five years, stressed by falling price differential between the average typical APR and Bank of England base rate 34
Figure 11: Of lenders, Picture Financial was the biggest spender on secured personal loans advertising in 2006 36
Figure 12: Direct mail remains the most dominant form of secured personal loan advertising, 2002-06 38
Figure 13: In terms of distribution, intermediaries accounted for over 65 per cent of all secured personal loan gross advances in 2006 41
Figure 14: Of brokers, Capital One was the top spender on secured personal loans advertising in 2006 43
Figure 15: Competitive pricing and product suitability are most important to intermediaries when choosing their number one lender 47
Figure 16: The opportunity to offer better pricing and a faster turnaround are the main incentives for intermediaries to look at new lenders 49
Figure 17: In Datamonitor's View, the secured personal loans market portrays an encouraging future to 2011 53