December 6, 2017

Till debt do us part: will borrowing sink or save UK consumers?


Written by Andy Lane, Partner, Financial Services

Of all the personal finance headlines we’ve pored over this year, some of the most resonant have concerned what might be described as the curious case of consumer credit in 2017.

Ten years on from the 2007/8 crisis, it feels that the boom in UK household debt – and the pressing need for media and policymakers to dissect the rights, wrongs, wants and needs behind it – has inspired record levels of column inches, tweets, posts, blogs, broadcasts and policy debates.

An eye-watering £200bn of outstanding personal loans, credit cards and car finance debt – growing nearly 10% annually – has understandably rung alarm bells at the Financial Conduct Authority (FCA) and Treasury Select Committee. Both have ramped up their interest in consumer indebtedness, with inquiries due to report in 2018.

Reputations on the line

In response, the media has been awash with doomsday forecasts of economic ruin arising from the Great British Borrowing Binge. And yet, commentators are simultaneously crediting a surge in later life lending with improving the financial outlook of older generations by enabling them to unlock money – in other words, borrow – from the value of their homes.

Growing competition and innovation in retirement lending means increasing numbers of homeowners can tap into their property wealth to support their financial planning. From humble beginnings, annual growth in lifetime mortgage lending is running close to 50% and the FCA is consulting on a move to add retirement interest-only mortgages to the product mix.

While one group of lenders faces calls to cut credit lines, another can’t extend them quickly enough. In both cases, reputations will be made and broken in 2018 and communications strategies must be a priority as businesses adjust to this complex, rapidly changing landscape.

Points of principle

Principles of responsible lending, fair treatment of consumers and protection for the vulnerable remain top of the regulatory watchlist. For unsecured credit providers, the ability to evidence these values at the heart of their thinking will become even more of a business-critical issue than it already is. A growing audience is watching their every move, from consumer champions, regulators and politicians to their customers and investors.

The same principles also apply to the widening community of later life lenders, with Nationwide, the Co-operative Bank, Santander and Legal & General all aligning themselves with the equity release market within the last two years. This shift towards the high street shows how a once-troubled industry can successfully create and communicate a far more robust and compelling proposition for consumers.

The result is an environment where brands can compete and talk openly – about the market generally and their specific growth ambitions – on a much more positive footing.

New mindsets

Looking ahead, many commentators describe one of the biggest communications challenges in the later life arena being to overcome the lingering stigma attached to debt in old age. Their suggestion is that it makes people reluctant to embrace – or admit to embracing – the idea of their home not just as their castle, but also a cashcard, savings account or pension.

However, times are changing and external factors already look to be prompting a shift in mindset. Rightly or wrongly, this year’s headlines show that debt of various flavours is a staple part of UK consumers’ daily diet in the 21st century. The realities of many households’ balance sheets is that, for those fortunate to own property, using it to support their financial plans in later life may increasingly become a logical, mass-market choice.