Lenvi’s 10th borrowing report trends in UK lending and borrowing
- Brand-led borrowing: Borrowers give equal weight to brand as interest rates when choosing a lender, despite market
- Fintech: Expect widespread adoption of AI and automation to streamline loan applications and risk assessment
- Is AI the answer to mortgage anxiety? Six in 10 (59%) worried about mortgage deal ending
- BNPL three times as popular as Pay Day Loans and is catching up with credit cards
- Survival borrowing: Vulnerable minorities up to twice as likely to use buy now pay later while as many people borrowing to cover food and bills as holidays
- Top lending predictions revealed
A new report1 revealing the latest trends and future predictions in UK lending and borrowing has been launched by Lenvi, the leading provider of lending software and solutions.
The 2024 borrowing report is the 10th released by Lenvi, the firm which powers lending technology for the likes of Barclays, Santander, Metro Bank and Admiral, after launching its first report in 20132.
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 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 (summarised below) 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.
Brand-led borrowing
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.
Richard Carter, CEO, Lenvi says “In today’s increasingly competitive FS market, brand is king. Borrowers are telling us that, nowadays, a race to the bottom only holds so much weight with them – even at a time when interest rates are far from the lows we’ve seen over the last decade. In turbulent times, people look for certainty. In lending, that means looking to lenders they can trust and those they know will treat them fairly when the going gets tough. If you can balance the opportunity afforded by your brand with interest rates then you’re going to win with borrowers.”
Mortgage anxiety – could AI be the answer if lenders can overcome data-sharing jitters?
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
| 18-24 year olds – 43% |
| Physical impairments – 33% |
| Cognitive disabilities – 33% |
| Mental health conditions – 27% |
| Ethnic minorities – 27% |
| 25-34 year olds – 25% |
| Longstanding health conditions – 25% |
Richard Carter, CEO, Lenvi says “The role that AI could have in opening up the mortgage market to those who are worried about their rates or individuals who are typically excluded from the market is clear. For example, research shows that half (49%) of consumers would be pleased to see green lending innovations, such as lower mortgage rates tied to household energy efficiency. Lenders need to use technology to rapidly innovate and launch much needed products that will support people from a range of backgrounds and with vulnerabilities.”
The adoption of Open Banking certainly seems to be growing3, 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 our 2020 report4. 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.
Richard Carter, CEO, Lenvi, says “Open banking has been the flavour of the decade in financial services. Now that the advent of AI is well and truly upon us, it’s understandable that some consumers are nervous. However, Millennials and Gen Z are more than ready to take advantage of the benefits AI can afford. With a balanced grounding in regulation and if lenders can demonstrate that consumers can genuinely prosper, 2024 will be an exciting time for mortgage and lending innovation.”
Lea Karasavvas, member of the Society of Mortgage Professionals board, says: “The cost of living crisis we currently find ourselves in, has led to a lot of innovation from lenders to navigate the payment shock that will have been felt by many. This innovation has seen lenders go longer on mortgage terms to 40 years, some lenders increasing their interest only proposition, other lenders entering the joint borrower sole proprietor space, to name but a few. Lenders such as Virgin, have launched five-year fixed rates with a two-year tie. Halifax and Virgin have also proposed new products called Own New Rate Reducer significantly reducing the rate paid by borrowers on new builds by utilising the developers incentive budgets on mortgage rate reductions. Skipton also launched a 100% mortgage with certain caveats last year, also.
“With an ever evolving market it is no wonder 15% plan to look online, and 83% will go to a broker. It is also understandable that only 15% of Gen Z understand their mortgage as so much has changed and evolved of late it will have generated confusion.
“The role of a broker has never been more pivotal and crucial, and the cost of living crisis has enhanced the broker/borrower relationship hugely as brokers try to navigate their clients through a payment shock that many would never have witnessed before.”
Green credentials take a dip
Two in five borrowers (39%) say that green credentials are important when it comes to making borrowing decisions, according to the 2023 report. This is slightly less than 2022’s report5 where almost half (45%) cited environmental credentials as important.
Richard Carter, CEO, Lenvi says “In difficult economic times, people tend to think less about the long-term benefits of choosing companies that have the environment high on their agenda. That said, green credentials are still seen as important to a significant portion of the borrower market and, with a bit of creativity, lenders could increase their appeal by rewarding borrowers for doing their bit.”
Commenting on the report, Alison Jessup, CEO of carbon negative finance firm, Canefin says: “We know that high upfront costs is the number one barrier to green home improvements, we therefore need green lending innovations to help break down this barrier. Some innovative ownership models such as Solar Subscriptions and Leases have emerged in Europe and the US and we’re now starting to see these introduced to the UK. However, these have not been without their problems and further innovation is needed to improve the outcome for the customer. We’re also starting to see homegrown innovation within this space. Later this year, we are looking to launch the first Carbon-Linked Loan, which offers borrowers a discount on their loan APR using proceeds from the sale of carbon credits associated with the loan.”
BNPL three times as popular as Pay Day Loans and is catching up with credit cards
Lenvi’s first report in 2013 revealed that concerns over ‘payday loans’ were high, with one in 10 (12%) considering this form of easy-access, high interest finance. The clampdown by the FCA in 20156 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 Gen Z and is gaining in popularity among older age groups7.
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.
Vulnerable and minority groups up to twice as likely to use BNPL
The popularity of BNPL is particularly a concern for vulnerable groups who, the report reveals, are up to twice as likely to use BNPL.8
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 conditions9. People with certain cognitive disabilities may also struggle with accessing and understanding complex documentation usually associated with finance applications10, 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 years11. 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.
Sebrina McCullough, director of external relations at Money Wellness, adds: “Whilst the findings of Lenvi’s survey are concerning, they’re also not surprising and very much mirror what we’re seeing. BNPL makes it easier to spend especially when no other form of credit is readily available to you.
“It poses a particular risk to people with mental health problems, who are often more prone to impulsivity and memory loss. Keeping on top of payments is a struggle, especially if they’re juggling several at once.
“We’ve supported customers who felt they were being chased relentlessly for BNPL debt, which can also worsen mental health conditions. And we are concerned that without regulation – that now won’t be happening before the election – and proper protection more and more people will find themselves spiralling into a cycle of debt.”
Vulnerable groups are ‘survival’ borrowing
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. 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 orientation14, while ethnic minorities are half as likely to have savings than white household15. 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 not16, 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.
Richard Carter, CEO, Lenvi says: “Our report highlights the growing need for Buy Now Pay Later and other forms of embedded finance to be regulated. It is no wonder that frictionless lending is popular among people who have historically been excluded from the lending market due to complex application processes, less than clear information and strained relationships with financial services firms. But while it can help with day-to-day money management when used correctly, it should not be encouraged for survival borrowing.
“Embedded finance is here to stay, but lenders must focus on creative solutions that will generate positive friction and save the most vulnerable from financially and mentally harmful situations. For example, a third (36%) of borrowers agree that financial services firms should offer counselling support to vulnerable customers, while one in five (20%) think lenders should introduce pre-application meditation to help prevent impulse purchase.”
Bill borrowing
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 Gen Z 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
| Rank | Reason | % |
| 1 | Car | 18% |
| 2 | Home appliances | 15% |
| 3 | Bills | 14% |
| 4 | Home renovations / Holidays / Technology | 13% |
| 5 | Food | 12% |
| 6 | Gift | 11% |
| 7 | Training | 10% |
| 8 | Clothes | 9% |
| 9 | Medical / Entertainment e.g. night out / Pet incl bills / Rainy day | 8% |
| 10 | Baby items / Child-related activities (school trip, school fees, leisure) / Wedding | 7% |
| 11 | Fines / Beauty treatment / Subscription / Legal fees / Cosmetics | 6% |
| 12 | Luxury handbag / Bike / Driving lessons | 5% |
To borrow or not to borrow
There are 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 UK17.
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, concerningly, gender reassignment surgery (28%).
Commenting on the report’s findings in relation to people borrowing money for IVF treatment, Professor Geeta Nargund, Medical Director of abc IVF says: “IVF is an important medical treatment which has allowed many thousands of people the opportunity to start a family. However, due to the NHS postcode lottery, which means funding for treatment can vary depending on the region a woman or couple lives in, many find they are unable to access funding for the treatment they need. As a result, several women and couples are having to resort to self-funding private treatment, which can come at a significant cost.
“Add to the increasing pressures facing couples with the cost-of-living crisis, many couples can find themselves priced out of treatment. As a result, we are increasingly seeing patients consider alternative means of funding their treatment – including seeking bank loans to help spread the burden. While it is essential we tackle the NHS postcode lottery to improve accessibility of IVF, ensuring funding options are available for those who need additional financial support can also help some access the treatment they need.”
Richard Carter, CEO, 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.”
Top lending predictions for the next decade revealed
- Rapid processing driven by AI: Expect widespread adoption of AI and automation to streamline loan applications and risk assessment, enabling faster approvals, a reduction in costs, and the more personalised experience many borrowers crave.
- Personalised products: Lenders will increasingly take tailored and specialised approached to lending to meet diverse borrower demands. Lenders will need to move fast to launch innovative products and to do this they will need flexible platforms to maximise relevance to different customer segments. Our research shows some support for solutions ranging from parent payment plans, to counselling support for vulnerable customers.
- Open banking will normalise: Despite some concerns about sharing data identified in our research findings, Open Banking is likely to be normalised among people under the age of 50 as borrowers are won over by the potential it offers to access to tailored products and potentially better rates.
- Friction ‘less’ rather than friction ‘free’ embedded finance: Popularity of embedded finance and the friction ‘less’ journey will continue to grow. However, BNPL will likely be brought to heel by the regulator in the UK and responsible, positive friction in the application process will be encouraged.
- Responsible brands will dominate borrowers’ decision making: While interest rates will always be an influencing factor when it comes to borrowing, growing social consciousness, particularly among younger age groups, mean that people are increasingly likely to choose lenders that are taking environmental and social responsibilities seriously.
1. Lenvi borrowing report, 2023 – published February 2024
2. Lenvi borrowing report, 2013
3. Adoption of Open Banking is growing, with more than 1 in 9 (11%) British consumers being active users in 2023, up from around 7% in December 2021, according to data from Open Banking Limited.
4. Lenvi borrowing report, 2020
5. Lenvi borrowing report, 2022
6. FCA confirms price cap rules for payday lenders – 11.11.2014
7. Question B2.1 – When you last borrowed money, which of the financial products was this for? Most popular products by age:
- 18-24: Buy Now Pay Later (26%), Credit Card (16%)
- 25-34: Credit Card (22%), Buy Now Pay Later 18%)
- 35-44: Credit Card (26%), Buy Now Pay Later (16%)
- 45-54: Credit Card (24%), Buy Now Pay Later (15%)
- 55-64: Credit Card (26%)
- 65+: Credit Card (27%)
8. 60% of ethnic minorities have used BNPL compared to 35% of white people
9. Common symptoms of mental health problems include impulsivity – https://www.moneyandmentalhealth.org/buy-now-pay-later-mental-health-black-friday/
10. Financial documents, including account statements, loan applications, and other paperwork, are often written in complicated language and formats that can be difficult for people with cognitive disabilities to understand – https://www.ftadviser.com/your-industry/2023/11/28/disability-and-financial-wellbeing-barriers-and-accessibility/
11. Question A5.5 – Which of the following products have you had in the last five years? (Credit Card)
· Those without mental health conditions (71% vs 52%)
· Those without physical impairments (70% vs 58%)
· Those without a cognitive disability (69% vs 58%)
· Those without long standing health conditions (70% vs 59%)
12. 45% of people from minority ethnic groups have looked for help from a financial provider on a topic such as setting up an account, or transferring money, compared to 25% of white people – https://malg.org.uk/new-report-finds-1-in-5-people-from-minority-ethnic-groups-experience-discrimination-due-to-race-when-dealing-with-financial-providers/
13. Question A5.10 – Which of the following products have you had in the last five years? (Friends and family loan)
· People with a cognitive disability (27% vs 11%)
· Ethnic minority (23% vs 10%)
· A mental health condition (22% vs 11%)
· Long-standing illness (16% vs 12%)
14. In a survey by Experian, 62% of LGBTQIA+ respondents said they had experienced financial problems because of their gender identity or sexual orientation – https://content.ophelos.com/post/financial-challenges-faced-by-the-lgbtq-community
15. 60% of Asian and 63% of Black households have no savings, compared to 33% of White households – https://www.natwestgroup.com/news-and-insights/news-room/press-releases/diversity-equity-and-inclusion/2021/jul/increasing-financial-inclusion-of-black-asian-and-minority-ethni.html#:~:text=60%25%20of%20Asian%20and%2063,respectively%20compared%20to%20Whi
16. Question C4 – Why did you borrow money rather than paying for it outright? Answer – to cover an unexpected shortfall
- People with a cognitive disability (33% vs 24%)
- Mental health condition (36% vs 22%)
- Long-standing illness/ health condition (30% vs 23%)
17. 3%/2% of 60200000 (UK population according to ONS) = 1,806,000/1,204,000
