Consumer Credit Trends 1990-2013

Verum Research, May 2014

INFORMATION PACK

Presentation flow

1. Research and methodology

2. Gross consumer lending 1990-2013

4. Gross and net lending by segment 2013

6. Credit outstanding 1990-2013

3. Net consumer lending 1990-2013

7. Debt and house prices 1990-2013

9. Debt write-offs and insolvencies 1990-2013

8. Household gross interest payments 1990-2013

5. Mortgage lending trends 2000-2013

11. Research conclusions

10. Lower household discretionary incomes

Consumer Credit Trends brings together all the principal data on consumer credit in the UK into

a single report. The data is analysed to provide historical trends over the period 1990-2013 and

is updated every six moths.

The research

The methodology

The methodology employed in producing this research is a detailed analysis of consumer

spending and consumer borrowing trends based on data from the Office for National Statistics

(ONS) and from the Bank of England from which conclusions are drawn.

The data analysed includes an historical analysis of gross and net consumer lending, credit

outstanding and repayments, debt write-offs and insolvencies, interest payments and interest

rates, mortgage market and house purchase trends, mortgage arrears and possessions, the

credit card market and overall household debt. Data on consumer debt excludes student loans

data. All the data analysed are based on current prices.

Foreword by Professor James Fitchett, University of Leicester

A foreword to this report has been written by Professor James Fitchett, University of Leicester

School of Management. James Fitchett is Professor of Marketing and Consumer Research:

“The main problem facing the UK economy is therefore now a problem concerning consumer

spending and debt. As these data show in considerable detail, the prospect of even slightly

higher marginal lending rates could have a catastrophic effect on the economy.”

Gross Lending

Source: Bank of England/Verum Financial Research

Gross annual lending comprising consumer credit (credit cards, overdrafts, personal loans etc)

and loans secured on dwellings (mortgages), reached a peak in 2007 at £563.4 billion of which

£200.6 billion was consumer credit and £362.8 billion was mortgage lending. After falling back

sharply in 2008 and 2009, gross lending began to rise again in 2010 and continued to increase

through to 2013.

Gross annual lending, 1990-2013 (£m)

0

100,000

200,000

300,000

400,000

500,000

600,00019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Gro

ss l

en

din

g, £

mil

lio

n

Consumer credit Mortgages

Net Lending

Source: Bank of England/Verum Financial Research

Net lending, comprising gross lending less repayments, rose from £17.8 billion in 1992 to a

peak of £123.6 billion in 2004. Net lending then stagnated as interest rates rose between 2004

and 2007, before falling back sharply to £48.3 billion in 2008 and to £5.3 billion in 2010. Net

consumer credit lending was actually negative in 2009 and 2010 as borrowers repaid more

than they borrowed, particularly in relation to consumer credit.

Net annual lending, 1990-2013 (£m)

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,00019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Ne

t le

nd

ing

, £ m

illi

on

Consumer credit Mortgages

Mortgages accounted for the

highest proportion of gross and

net consumer credit in 2013 at

49% and 57% respectively with

£176.4 billion gross and £11.3

billion net being borrowed for

mortgage finance.

Gross & Net Lending by Segment 2013

Source: Bank of England/Verum Financial Research

Credit cards accounted for 38%

of gross consumer credit in

2013 and 15% of net credit with

£138.6 billion gross and £2.9

billion net being borrowed on

credit cards.

Mortgages£11,290

57%Credit cards

2,94615%

Other£5,55628%

Mortgages176,399

49%Credit cards

138,63338%

Other47,31113%

The number of all mortgages

approved peaked much earlier than

the value of mortgages in 2003 at 4.1

million. The volume of mortgages

approved fell in 2004 and 2005, which

coincided with a rise in interest rates.

Mortgage volume fell sharply in 2008

by 40% and reached a low of 1.2

million in 2012 but then rose by

nearly 12% to 1.3 million in 2013.

Mortgage Lending Trends

Source: Bank of England/Verum Financial Research

The value of all mortgages approved

reached a peak in 2007 at £360

billion before falling to £216 billion

in 2008 and reached a low of £135

billion in 2010. The value of

mortgages approved has since risen

steadily to reach £180 billion in

2013.

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Va

lue

of

loa

ns

ap

pro

ved

£m

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Nu

mb

er

of

loa

ns

ap

pro

ved

Credit Outstanding

Source: Bank of England/Office for National Statistics/Verum Financial Research

Total outstanding household debt

has risen by 314% between 1990

and 2013 from £348 billion to

£1,437 billion. Outstanding debt

fell from a previous peak of

£1,431 billion in 2008 to £1,408

billion in 2011 but has since

begun to rise again.

Credit outstanding & household income, 1990-2013

Mortgage debt or credit secured

on property now accounts for

89% of the total credit

outstanding owed by

households. Credit cards

accounted for 4% of total credit

outstanding and other lending

accounting for 7%.

Credit outstanding by segment, 1990-2013

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Total credit outstanding Households' gross disposable income

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Credit cards Other credit Mortgages

Debt & House Prices

The principal cause of the rising level of debt owed by households in the UK has been the rise

in house prices relative to incomes. Over the period 1990-2013, total outstanding household

debt rose by 314% while average house prices rose by 319% and mortgage debt as a

proportion of total household debt has increased from 85% in 1990 to 89% in 2013.

Credit outstanding and house prices, 1990-2013

Source: Bank of England/Office for National Statistics/Verum Financial Research

-

50,000

100,000

150,000

200,000

250,000

300,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,00019

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

13

Ho

us

e p

rice

s (£

)

Ou

tsta

nd

ing

deb

t (£m

)

Credit outstanding House prices

Debt Write-offs & Insolvencies

Source: Bank of England/The Insolvency Service/Verum Financial Research

Write-offs of mortgage debt by

banks reached £984 million in 2009

while write-offs of credit cards and

other unsecured lending reached

£9.1 billion in 2009. Write-offs of

both mortgage debt and unsecured

debt have since fallen sharply with

mortgage write-offs having fallen to

£664 million in 2013 while write-

offs of unsecured debt have fallen

to £2.9 billion.

Personal insolvencies rose steadily

from a low of 24,441 in 1997 to a

peak in 2010 of 135,045.

Insolvencies rose more sharply from

2004 following an increase in

interest rates. The increase in

insolvencies in 2009 was due to the

introduction of Debt Relief Orders

(DROs) under the Tribunals, Courts

and Enforcement Act 2007. Total

insolvencies fell to 122 million in

2013.

0

2,000

4,000

6,000

8,000

10,000

12,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Write-offs of total consumer lending by banks and building societies (£m)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Insolvencies

As household debt has grown,

household gross interest payments

have risen and reached a peak in

2009 before base rates were cut to

0.5% (Note – base rates reached

14.6% in 1990 but interest payments

were much higher in 2009 despite

interest rates peaking at just 5.5% in

2007).

Gross Interest Payments Risk

Source: Office for National Statistics/Verum Financial Research

Although household gross interest

payments have fallen as a proportion

of household income, they have not

declined significantly because

household debt has grown faster

then household incomes.

Consequently, high-debt households

are at risk if interest rates rise.

0

20,000

40,000

60,000

80,000

100,000

120,000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Gross interest payments (£m)

0%

2%

4%

6%

8%

10%

12%

14%

16%

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Gross interest payments as % of household disposable income

Household discretionary incomes

have grown at a slower rate than

total gross household income since

1990 because of a rising level of non-

discretionary or essential living costs.

Essential living costs fell steadily after

the 1990 recession but have

remained stubbornly high since the

2009 recession.

Lower Household Discretionary Incomes

Source: Office for National Statistics/Verum Financial Research calculations

Lower levels of discretionary income

give households ‘less green’ to take

on or afford additional credit,

especially in a variable interest rate

environment where more than half

of all mortgaged households are on

variable rate mortgages.

40%

45%

50%

55%

60%

65%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

% G

ros

s D

isp

osa

ble

Inco

me

Household non-discretionary spending % of gross disposable income

35%

37%

39%

41%

43%

45%

47%

49%

51%

53%

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

% G

ros

s D

isp

osa

ble

Inco

me

Discretionary income as % of disposable income

Non-discretionary spending

Discretionary income

UK Consumer Credit Trends – Some Conclusions

• Increasing debt is linked to rising house prices

• Households are burdened by high non-discretionary spending

• Household discretionary incomes are shrinking

• High household debts are constraining economic growth

• Debt is used by consumers to facilitate both investment and consumption

• High mortgage debt has implications for corporations in other credit-sensitive sectors

• There is a requirement to wean the population off debt

• There is a need for less debt and more pension investing

• Household insolvency rates have risen significantly since the 1990 recession

• Interest rates of 3% would tip economy into recession due to high debt servicing costs

The following points summarise very briefly some of the conclusions from the research:

Consumer Credit Trends Report

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Total report page length – 112 pages

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