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  5. > UK Consumer Credit 2016: Forecasts and Future Opportunities

Summary
Consumer credit lending in 2016 will rise by 7%, but growth will slow over the forecast period, with balances outstanding reaching £292.5bn in 2020. Consumer confidence will maintain current demand, despite the uncertainty caused by the UK's vote to leave the EU in June 2016. Strong competition is increasing the availability of credit but also weakening credit scoring criteria; consequently, there are signs that credit quality is deteriorating. Accommodating monetary policy should mitigate increases in the cost of credit due to higher inflation.

Key Findings
- Average credit quality has reached its lowest point in over four years, and default rates have been on an upward trend over the last two years.
- UK consumers are currently positive about their immediate financial situation. However, their future expectations of the UK economy are much more negative and have been for some time. The extent of this apprehension about the future has not been significant enough to curtail growth in retail spending, but consumers have held back on purchasing luxury and big ticket items.
- Lower credit scoring criteria has been priced in by providers, resulting in average interest rates on loans of £5,000 rising 1.9% in a year.
- P2P remains the fastest-growing sector. The P2P lending market is showing signs it is starting to consolidate, with synergistic partnerships with other sectors being used to increase the scale of operations. We estimate that P2P lending will comprise 0.42% of total consumer credit in 2016, rising to 1.2% in 2020.

Synopsis
Verdict Financial's “UK Consumer Credit 2016: Forecasts and Future Opportunities” analyzes the UK consumer credit market, with coverage of both supply and demand factors as well as sectoral analysis. Specifically the report:
- Analyzes the relative performance of the major sectors of the UK consumer credit market.
- Reviews the drivers behind recent market performance.
- Identifies changes in market dynamics.
- Forecasts balances outstanding.
- Forecasts future drivers of growth and product features.

Reasons To Buy
- Which factors will impact the supply of lending?
- Which factors will affect consumer demand for credit?
- Which sectors offer the best prospects and opportunities for expansion over the next few years?

Table Of Contents

UK Consumer Credit 2016: Forecasts and Future Opportunities
Table of Contents
EXECUTIVE SUMMARY
The state of the UK consumer credit market
Prospects for niche sectors
Critical success factors
CONSUMER CREDIT GROSS ADVANCES AT A RECORD HIGH
Gross advances are estimated to climb to £292.5bn by 2020
Outstanding debt is continuing to rise
Early indications are that credit supply could start to tighten
The UK has seen four years of uninterrupted credit supply growth
The quality of new credit has deteriorated further over the last 12 months
Quarterly write-offs on credit card and other unsecured debt have resumed their decline following a spike in Q3 2015
The Financial Conduct Authority is implementing a more stringent regulatory regime
New techniques in credit assessment are unlikely to alter the supply of credit
Consumer demand for unsecured credit will be maintained
Credit providers report a rebound in demand
Consumer confidence dropped significantly but is starting to rebound
Consumer spending has rebounded, but sales of luxury items have declined
Looser lending criteria have been priced in
FUTURE PERFORMANCE WILL VARY SIGNIFICANTLY BY SECTOR
P2P lending will be the fastest-growing sector
Credit card lending will be driven by growing consumer confidence in online and mobile commerce as well changing spending habits
Overcapacity in the car market will reduce demand for motor finance
Competition and regulatory pressure will weigh on overdraft usage
Online spending and increased availability of POS finance will support growth
Marginal growth is forecasted for home credit
Payday lending will stabilize at a much reduced level
P2P lending will be the fastest-growing sector of consumer credit over the forecast period
APPENDIX
Abbreviations and acronyms
Definitions
Gross advances
Balances outstanding
Home credit
Payday loan
Methodology
Future Sentiment Index
Present Sentiment Index
Bibliography
Further reading
About Verdict Financial
Disclaimer

List of Tables
Table 1: Consumer credit forecasts by product line (£m), 2016-20f

List of Figures
Figure 1: Unsecured gross advances will grow by 2-3% per year over the forecast period
Figure 2: Credit availability has been improving for several years
Figure 3: Looser lending criteria have contributed to worsening credit quality
Figure 4: Debt write-offs of other unsecured lending has reached a new low
Figure 5: There has been significant relaxation of credit scoring criteria over the last two quarters
Figure 6: Lenders are reporting stagnating demand
Figure 7: Consumer confidence plummeted towards the end of 2015
Figure 8: Retail sales are rebounding
Figure 9: Relaxation in credit scoring criteria appears to have been priced in
Figure 10: Unsecured consumer credit gross advances will total £292.5bn by 2020
Figure 11: Increased online spending will drive credit card growth over the next few years
Figure 12: Motor finance is set for a period of declining growth
Figure 13: Changing consumer preferences will drive reduced use of overdrafts
Figure 14: Retail finance will witness modest growth over the next few years
Figure 15: Home credit lending will grow at a marginal rate over the forecast period
Figure 16: Payday lending will be drastically reduced from its peak and is likely to remain so
Figure 17: Annual P2P lending will reach £3.4bn by 2020

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