As high street banks come under more pressure to increase lending following signing up to the Funding for Lending scheme, the test of the latter’s success will come in the face of strong borrowing demand.
This test is likely in the next few months, given the Q4 2012 JGFR / GfK Financial Activity Barometer* (asking people about their intended financial activity in the next 6 months) showing borrowing demand jumping to its highest level since September 2009.
Both consumer credit demand and mortgage demand show big increases compared to June and a year ago.
More people intend taking out consumer credit (12%) the highest proportion in 3 years. The JGFR Consumer Credit Borrowing Intentions Index** gained 14 points to 69.0 compared to June.
Housing market confidence up 20 points to best since March 2010
Mortgage demand posted its highest quarterly gain since March 2009 with property purchase intentions also showing a big quarter-on-quarter increase.
Overall the JGFR Housing Market Confidence Index is up 20 points to 65.6, its best measure since March 2010. The JGFR Mortgage Intentions Index rose 7 points to 50.2, its best since a year ago, while the JGFR Property Purchase Intentions Index gained 5 points to 62, also at a 4-quarter high.
Demand for financial products highest in 2 years
73% of adults intend to save, invest, borrow or repay debt, up from 68% in June and 69% in September 2011 and the highest proportion since June 2010.
The headline JGFR Financial Activity Barometer Index – which has reflected weak demand in the past two years - rose 3 points on the quarter to 90.3, higher than 88.8 a year ago, but well short of the 10-year average of 96.3.
Across the 18 categories of saving, investment and borrowing activity, there are some notable changes this quarter:
· JGFR’s Savings / Investment Activity Intentions Index edged higher to 92.4, up from 91.6 in June, and little changed on a year ago
· The combined JGFR Borrowing Intentions Index surged 12 points to 63.5, up from 51.5 in June to a 2-year high
· With greater borrowing intentions in prospect, there is also a jump in the JGFR Debt Repayment Intentions Index, up from a survey low of 64.6 in June to 72.6, but well down on 77.9 in June 2011
Cash deposit and ISA demand weaker
Fewer people intend to place a cash deposit or put money into an ISA in the next 6 months. 28% of adults expect to place a cash deposit, dropping from 30% in June and well below a 35% long-term average.
The proportion of people intending to put money into an ISA also dropped, down from 31% in June to 28% and down from 34% a year ago. Poor returns on cash deposits together with the financial squeeze on households are likely factors in the decline in their popularity.
More people (15% v 12%, June) intend to pay into a regular savings scheme that may reflect more competitive interest rates and also the spreading of investment timing risk. This is the highest level since June 2010.
Investor confidence leaps higher
Less volatile equity markets boosted by the continuous inflow of printed money (QE) appear to have triggered a big gain in investor sentiment this quarter.
The headline JGFR Equity Buying Intentions Index jumped from 81.7 to 96.9, its best level since December 2010. Such a rise in expected activity may reflect both improving, but also shifting asset allocation among investors.
This is reflected in a record leap in the JGFR Securities Selling Index – up from 70.6 to 95.7 to its highest level since June 2007. This suggests greater trading volumes for retail stockbrokers and fund managers.
Corporate & government bond purchase intentions also recorded a sharp improvement in investment intentions. For the fourth successive quarter the JGFR Corporate / Government Bond Index gained – up 11 points to 123.4, its best level since June 2010.
Expected regular pension contributions at decade low
Despite two major industry changes taking place in the next 6 months designed to improve consumer take up of financial products - and impacting hugely on life & pension businesses - demand is set to continue subdued.
For much of 2010 life & pension demand remained buoyant but for the past year demand has
weakened. The JGFR Life & Pensions Intentions Index edged down 1 point at 83.8 and compares with 86.9 a year ago.
Expected regular pension contributions – the focus of auto-enrolment – dropped to a 10-year low, with just 20% of adults intending making a contribution, down from 26% in June and a long term average of 29%.
More positively, intended lump sum life & pension product contributions remain well above average, while life insurance contributions in prospect are at their highest in 2 years.
Commented John Gilbert, Chief Executive of JGFR on the findings:
“This quarter’s Financial Activity Barometer shows considerable shifts in financial activity. For financial services providers, prospective business volumes in mortgages, consumer credit and investment products are at their brightest for some time. This is offset by a weak outlook for retail deposit inflows. The ball however is now firmly in the court of the banks to respond to rising borrowing demand. “
*The 41st quarterly Financial Activity Barometer was undertaken by GfK NOP for JGFR among 2,004 individuals aged 16+, representative of the UK population between August 31 and September 9 by telephone. It is housed on the same omnibus that is used in the UK consumer confidence barometer (up 1 point in September to -28) for The European Commission enabling cross-analysis
The FAB covers 18 categories of intended activity:
· cash deposits, regular savings plans, junior ISAs / child trust funds, ISAs,
· regular pension contributions, lump sum pension contributions, regular life contributions, mortgages, property purchase,
· equity buying and selling, government / corporate bond investment
· overdrafts, personal loans, credit card borrowing, car finance plans
· debt repayment
· cash and capital withdrawal
**JGFR indices are computed on a 2-quarter moving average basis to cover the 6-month period respondents are asked to consider
The autumn Financial Activity Bulletin – reporting on the key findings of the FAB will be published on Monday October 15th.
Analysis across product areas is by socio-demographics, government regions, household income activity levels, households financial position, confidence and intended product activity
Charting a decade of financial services activity……
Chart: Financial Activity Indices Q2/Q3 2002 – Q3/4 2012
Please visit www.jgfr.co.uk for more information
8 October 2012