Revealed - the latest trends in UK lending and borrowing

A new report reveals the latest trends  in UK lending and borrowing, compiled by lending software company Lenvi.

The most notable trends include the growing importance of brand and trust for borrowing decisions and AI innovation, a dip in the number of people factoring green credentials into their decision making and the growing popularity of Buy Now Pay Later (BNPL). The report also reveals changing borrowing behaviours and perceptions of what is ‘acceptable’, as well as disparities among vulnerable groups.

Top lending predictions for the next decade are also unveiled, including rapid automated processing which will save costs and improve customer experience and increasingly personalised and innovative products to suit diverse customer demands.

The report reveals that borrowers are placing more emphasis on brand than ever before, with consumers putting equal weight in brand reputation (38%) and interest rates (39%) as the top things they look for in a lender – more than any other factors. This is compared to 2013 when almost half (45%) said they would borrow from any lender as long as they were happy with the interest rate, with brand loyalty rarely factoring into decision making.

On mortgages, six in 10 (59%) are worried about finding an affordable rate when their current deal comes to an end, with people more likely to switch in 2024 (80%) as in 2022 (60%). Furthermore, certain groups are more likely to find it difficult to find a financial product that matches their financial situation.

Categories of people who are more likely to feel excluded from the mortgage market

The adoption of Open Banking certainly seems to be growing, with 65% of people considering giving a lender temporary access to their transaction history if it could lead to a more personalised rate - up from 60% in 2020. The implementation of Open Banking technology from lenders certainly makes customer interactions more seamless, through spending less time gathering data and more time understanding how to support customers. This suggests that whilst there is growth potential, winning over consumer trust will be essential this year.

Moving to green issues, some 39% say that eco-credentials are important when it comes to making borrowing decisions, according to the new report. This is slightly less than 2022’s 45%.

Lenvi’s first report in 2013 revealed that concerns over ‘payday loans’ were high, with 12% considering this form of easy-access, high interest finance. The clampdown by the FCA in 2015 seemed to curb these practices. 

Instead BNPL, a largely unregulated, easy access borrowing model that is usually built into the consumer shopping process, has taken over in popularity. In fact, two in five (40%) have used it within the last five years, increasing to almost half (47%) for people under the age of 44 and seven in 10 (70%) for 18-24 year olds. It is even more popular than credit cards among  young people and is gaining in popularity among older age groups.

While interest rates on BNPL are nowhere near the levels offered by payday loans, concerns centre around people’s inability to track and manage repayments, particularly when people have multiple loans running in tandem – known as ‘loan stacking’. Only one-in-four (25%) have said using BNPL has made it easier for them to manage money.

The popularity of BNPL is particularly a concern for vulnerable groups who, the report reveals, are up to twice as likely to use BNPL.

Over half of those who have a mental health condition (55%) and those who have a cognitive disability (52%) have used BNPL compared to just one in three (34% / 36% respectively) people who do not. Previous research suggests that the uptake of BNPL among these groups is in part linked to impulsive tendencies linked with their conditions. 

People with certain cognitive disabilities may also struggle with accessing and understanding complex documentation usually associated with finance applications, which explains the appeal of the frictionless BNPL journey. In fact, the report reveals that people who have disabilities, mental health conditions or longstanding health conditions are up to 27% less likely to have had a credit card in the last five years. 

Lenvi says this highlights the growing need for buy now pay later to be regulated to avoid financial harm while improving accessibility and financial education for vulnerable individuals.

BNPL is also more prominent among ethnic minorities, with six in 10 (60%) ethnic minorities having used it to borrow money compared to just one in three (35%) white people. Research suggests that people from ethnic minorities are more likely to seek help from financial providers¹², but BNPL allows these groups to bypass systems and processes that have historically been exclusionary. The report also reveals that they, as well as people with cognitive disabilities and mental health conditions, are more than twice as likely to rely on family and friends for a loan indicating mistrust¹³, exclusion and a need for further support for these groups.

Borrowing in general is more likely for some vulnerable groups, with over half of people – such as those with mental health conditions (54%) and cognitive disabilities (51%) – and minority groups – such as LGBTQ+ (56%) and ethnic minorities (50%) most likely to have borrowed in the last 12 months. Lenvi suggests this is likely linked to ‘survival borrowing’ – compounded by the cost of living crisis – as poverty and financial hardship is more prevalent among these groups.

For example, according to Experian, 62% of LGBTQ+ have experienced financial problems because of their gender identity or sexual orientation, while ethnic minorities are half as likely to have savings than white household. In particular, people with cognitive disabilities, mental health conditions and long-standing illnesses are more likely to rely on borrowing to cover unexpected shortfalls than those who do not, while ‘privileged’ groups borrow much higher amounts for single transactions suggesting that they take a longer term approach to borrowing. Vulnerable groups are also more likely to be concerned about making repayments.

The report shares detailed insight into people’s reasons for borrowing – something that is crucial for lenders to understand for innovation.

Of those who had borrowed money, most people had borrowed money for items you would expect a car (18%), home appliances (15%), home renovations (13%), holiday (13%), technology such as mobile phones and computers (13%). Worryingly, almost as many had also borrowed to pay bills (14%) and for food (12%). Bill borrowing is most common for electricity (6%) followed by Gas (5%) and vehicle fuel (4%) and is mostly used among 18-24 year olds and people who live in the North East.

Almost one in 10 people have borrowed money to fund a grocery shop (8%), while young people were also most likely to have borrowed to pay for food, with over a quarter having done so (28%).

The perception of borrowing for food appears to be frowned upon, with over half (54%) deeming it unacceptable, compared to just one in three (35%) who think it is unacceptable to borrow money for training and learning. This goes up to three in four (77%) over the age of 65 who think borrowing money to pay for food is unacceptable.

Reasons for borrowing money in order of popularity

Lenvi’s new report suggests that there’s a wide range of reasons people are borrowing money, according to the report, ranging from neurodivergent diagnosis (3%), IVF treatment and gender reassignment surgery (2%) to injectables (2%) and spray tans (2%). While these may seem like small numbers, it represents between 1.2 million and 1.8 million people in the UK.

However, there are stark disparities between what the ‘average’ person regards as acceptable reasons for borrowing. While the majority of people agree that borrowing to fund a car (70%), home appliances/renovations (69%) and training (65%) is acceptable, this is not so much the case for perceived luxuries. Only 24% think it is acceptable to borrow money to buy a luxury handbag, 28% for beauty treatments and injectables and 29% for entertainment subscriptions and gym memberships.

In fact, the least acceptable medical treatments to pay for with finance is a buttock enhancement (18%), followed by a breast enlargement (21%) and gender reassignment surgery (28%).

Richard Carter, chief executive of Lenvi, says: “The way people borrow and perceive borrowing is changing, and it’s crucial that lenders understand this to meet consumer needs. While most people still think of home renovations and car finance when it comes to borrowing, these are just two of a wide variety of uses and it won’t be long before a one-size-fits-all approach to lending will be outdated.

“For example, 29% say they would support parent payment plans specifically designed to support parents at key stages through their child’s life, from buying their first pushchair to their first car. While 32% would like to see more from medi-lending to support people from diagnosis through to surgery. Others would like to see four-legged finance (19%) options that would fund their dog or cats life from purchase through to veterinary bills. And some would like to see translending (11%) developed to support borrowers as they transition through gender reassignment surgery, from diagnosis, hormonal therapy and surgery.

“People want solutions that are tailored to their unique circumstances and uses, so lenders need to put themselves in their customers shoes and get creative if they are to match their expectations.”