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Finance Houses Market Report
Key Note Publications Ltd, Jan 2000
In 1999, the total UK market for business and consumer finance was worth £170.33bn. Penetration by finance houses was estimated at 13.8%, giving a total market value of £23.44bn.
Economic reports published in early 2000 have been mixed. On the one hand, there have been claims that the UK economy is in a healthier state than it has been for a generation and that productivity has been rising swiftly, owing to the high levels of investment financed out of profits.
On the other hand, surveys have suggested that, in small and medium-sized manufacturing businesses (SMEs), even though orders and output are starting to rise, prices and employment are still falling. Moreover, the proportion of small firms expecting to invest more is still outnumbered by those expecting to cut investment.
Even in the more buoyant consumer finance sector, there are conflicting views. While some expect the economy to grow well ahead of its
long-term trend rate in 2000 and 2001, others predict that growth in the consumer market will slow.
In the business market, finance houses continue to work hard to regain the tax advantages for leasing enjoyed prior to the Budget of 1997. The target is to put lease finance back onto a level playing field, but as yet, these efforts have not shown tangible results. The market for motor finance is facing a difficult time, as a result of reducing residual values and the increasing demand for parity throughout Europe on new car prices (Euro-transparency). Another problem is the growth in the use of credit and store cards for the provision of short-term loan finance.
The market needs to find a way of reporting sales more accurately. As the major finance houses become absorbed into the major banks which own them, it becomes harder to separate the sales they achieve as finance houses and those achieved by the holding banks. Since finance houses come under a separate regulatory regime, there are those within the industry that believe they should report separately. This is already particularly difficult in the case of credit card and directly-marketed personal loan business, and there is a danger that the situation will become even more confused as the markets expand into online banking.
Key Note forecasts a 13.7% increase in finance house sales between 2000 and 2004, to £27.56bn. Growth in business finance will be modest at 12%, but the smaller consumer finance sector will remain more buoyant, showing growth of 24.6%.
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