Latest Apex Insight research shows UK High-Cost Short-Term Credit market has returned to growth
Industry: Business
Around 30 UK lenders now offer high-cost short-term credit. The market has returned to growth as lenders have launched new, FCA-compliant products and taken out costs.
London, UK (PRUnderground) September 28th, 2017
Apex Insight defines high-cost short-term lending (HCSTC) to include loans with an APR of 95% or higher, capturing those which have been positioned to fall outside the FCA’s cut-off of 100%.
The market grew in a lightly-regulated enviroment prior to 2015, to peak at over £1bn in revenues. The FCA has now imposed much tighter regulation, leading to a fall in lending levels. It predicted that only four or five of around 400 providers would remain in the market. Although many firms have withdrawn there are still at least 30 active HCSTC market participants and even some new entrants.
Our 2017 report on the UK High-Cost Short-Term Credit Market quantifies its size, includes an in-depth analysis on drivers of growth and sets out our market forecast to 2020.
Key findings include the following.
- The market has now returned to growth as lenders have redesigned their products to comply with the FCA’s regulations, which make shorter loans unprofitable.
- Average daily interest rates have fallen, days per loan have increased and the market has become more concentrated
- The most attractive area of the market for lenders are loans over £300 for 3-7 months, which has been reflected in the positioning of newer entrants.
The outlook for the market is now once again positive based on Government austerity policies and further benefits cuts which, despite some improvement in overall economic conditions, appear likely to lead to sustained demand for HCSTC loans. Also, as mainstream lenders are unlikely to target sub-prime borrowers, there will still be an opportunity for the High-Cost Short-Term Credit market to recover and grow at a modest pace as consolidation leads to lower average costs for lenders.
In this environment we expect to see further growth as firms innovate and reduce operating costs to drive profitability. A further tightening in regulation could change this but we expect fine-tuning of the price control mechanism rather than a significant cut in the maximum interest rate.
The 2017 UK High-Cost Short-Term Credit market report is available now. It is one in a series of consumer credit market reports, covering markets including Point of Sale Finance, Car Finance, Pawnbroking, Debt Purchase / Collection, Rent to Own Retail and Home Credit.
About Apex Insight
Apex Insight is an independent provider of research and consulting services covering business and financial services markets in the UK and Europe. It publishes insightful market reports and carries out commercial due diligence and other bespoke consulting exercises to support managers, investors and advisers in making better business decisions.
