Big Financial Service Brands Dominate

Customers of HSBC are the most confident and those of Halifax expect to be the most active, according to the latest Financial Activity Bulletin produced by Martin Hamblin GfK and John Gilbert Associates. These findings are part of the quarterly survey that links consumer confidence with consumers' expected saving, investment and debt activities in the coming 6 months. For the first time, consumers were asked about who they regarded as their main financial services provider.

The dominance of the big financial services brands is reflected in the fact that the top 10 bank and building society brands comprise 78% of main financial services provider relationships yielding enormous distribution muscle. Lloyds TSB is the market leader overall and across the majority of expected savings, investment and credit activity. Major long-term life and pension institutions are not regarded as main financial services providers, suggesting that their role is as a manufacturer rather than a distributor of products.

Despite the fall in consumer confidence during the past quarter (-7) to a low last seen in Q1 1995 (-12), expected activity in savings and investment products increased among consumers, up 3 percentage points from 66% in December to 69% in March. Activity in credit products was unchanged at 24%, although expected demand rose for mortgage / remortgages, up 1 percentage point to 12%, the highest since the survey began last March. Regionally the highest level of expected financial activity is found in the North and North West.

The growth in the proportion of people repaying debt / paying down debt continues to grow, up 1 percentage point to 35% compared to December, and up 8 percentage points since last March. The 23-29 age group is the most active socio-economic segment with 54% (47% December) planning repayment and 36% (35% December) expecting to take out new debt.

Life and pension providers seem well placed to see strong new business flows in the coming months as consumers appear to accept the need to build up long-term savings. Such an increase in planned life and pensions activity suggests that people have not lost confidence in the long-term savings industry. The year- long increase in people intending to pay into a regular pension scheme continued in March (now covering 35% of adults) and is up 11 percentage points on March 2002. The proportion of consumers planning regular life contributions increased from 23% in December to 27% in March.

Deposit taking organisations should also expect to see strong inflows despite the very low interest rates being paid. The proportion of people expecting to deposit cash into a bank, building society or a National Savings and Investment product is 35%, up 1 percentage point on December and up 7 percentage points on June 2002.

Investors' confidence remains brittle, with no sign as yet of a more positive attitude towards equities and equity-based collective investment. While there are fewer sellers of shares and unit trusts, 7.5% compared to 9% in December, the proportion of expected purchasers has fallen for both lump sum (down from 8% to 7%) and monthly fixed sums (down from 5% to 4%).

One finding that is common to each survey is the relative strength of ISA activity across almost all socio-economic and income groups with the exception of the lowest household income band of under £7,000. ISA activity among consumers has declined from a peak of 30% in September 2002, although expected activity rose 1 percentage point to 28% in March from 27% in December. By age group, the over 50s (32%) are most likely to take out ISAs in the coming months. The survey does not distinguish what type of ISA is being planned, although this survey evidence suggests cash-ISAs are more likely.

The coming months are unlikely to see any reduction in the demand for mortgages and remortgages. The proportion of consumers expecting to seek a new mortgage or extend an existing mortgage has increased by 3 percentage points (from 9%) since March 2002 and 1 percentage point (from 11%) last December. The 1/4 point cut in interest rates will have been one factor in stimulating demand. Only around 40% of people expecting to take out a mortgage expect to put down deposit on a property suggesting that the majority will be used for remortgaging and/or equity withdrawal.

A key feature of the Financial Activity Bulletin is to monitor consumer confidence in relation to the movement of various product categories over time. There now appears to be emerging the 'over-confident' consumer willing to risk a lot - particularly in relation to mortgage behaviour. For the third consecutive survey consumers expecting to take out or increase a mortgage (-1 March 2003) have had much higher levels of confidence than people expecting to take out other products and the overall level of confidence (-10, March 2003). This suggests that lenders need to be aware of too-confident consumers in their credit approval process.

Overall expected consumer credit activity (15% of consumers) was the same as in December with increases in personal loans, car financing plans and plastic card borrowing activity offset by a drop in overdraft borrowing. Compared to the over-confidence of prospective new mortgage consumers, people seeking increasing borrowing by overdraft have a confidence score of -14.

Some 20% of consumers are financially inactive and these people have the lowest level of confidence (-15). Low levels of confidence are also found among the non-working, mainly retired (-15), outright home owners (-17), 50-64 year olds (-16) and over 65s (-21).

Commenting on the survey findings John Gilbert said: 'For financial services providers the next 6 months should see a pick up in activity across savings, investment and credit products despite the fall in consumer confidence. There does appear to be evidence of the need to save long-term being heard by consumers. A stock market rally post the Iraq War will further boost saving/investment activity. It is however a fairly confused environment. Tax increases have yet to show through. There is the likelihood that another cut in interest rates could reduce consumer confidence further among the growing number of older consumers who need higher interest income. Younger homeowners will on the other hand continue to benefit from lower mortgage rates and spending power released from their property. Aggressive marketing to this group may need to be curtailed as the demand for regulation of mortgage lending may grow.'

The Financial Activity Bulletin is produced every January, April, July and October. It relates consumer confidence to financial activity and tracks this against expected savings, investment and credit usage activity over the next 6 months. It also tracks activity and confidence among main financial provider's customers.

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

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