Households in Dundee have the lowest value of outstanding personal loans in Great Britain with an average of just £980

Dumfries & Galloway, Kirkwall and Lerwick also rank among the areas of the UK with the lowest average value of outstanding personal loans

- The average figure for households across the whole of Scotland is £1,189

- In contrast to this, the average household in London has £1,805 outstanding [1]

New figures reveal households in Scotland have the lowest value of outstanding personal loans with just £1,189 owed (see Figure 1), compared to an average in Great Britain of £1,371. Analysis by the Centre for economics and business research (Cebr), commissioned by Shawbrook Bank, suggests households in Scotland have taken out smaller personal loans than those in the rest of the UK.

The postcode with the lowest value of outstanding personal loans is Dundee (£980 followed by Dumfries & Galloway, Kirkwall and Lerwick. In contrast, London has three of the five postcode areas with the highest level of outstanding loans – Uxbridge, IIford and Harrow.

For all of the UK’s regions, the average value of outstanding loans per household has increased significantly between 2013 and 2017 by an average of nearly 19%. In Scotland the amount outstanding has risen from £1,068 to £1,189 during this four-year period, representing an increase of 11%.

Average incomes in London are higher than the rest of the UK, which to some extent explains why households in the capital are able to service larger loans. This can be highlighted by adjusting the average value of outstanding personal loans per household with average levels of income in each region, which reveals a drastically different picture (see Figure 2).

The North East (5.3%), North West (5.3%) and Yorkshire & Humber (5.2%) have the highest level of personal loans by income, while London has the second lowest at just 4.2% (see Figure 2). East of England ranks as the lowest with value of outstanding loans as a share of income of just 3.5%,

Outside of London, regions with a relatively low value of outstanding loans as a share of average income include the East of England (3.5%), Scotland (4.4%) and the East Midlands (4.7%).

While the report found Scottish households may be more comfortable with the outstanding value of their loan than those in some other UK regions, borrowers in the country could be paying more for their loans than initially expected. The report finds the average APR for a fixed rate loan is currently 7.3% whereas the representative rates advertised by leading UK lenders for the average loan value (of £9,000) ranges from 2.8% to 4.9%.

The potential discrepancy in rates may not be something most Scottish loan applicants are aware of, the vast majority (81%) of those surveyed* in Scotland expect to get the advertised representative rates but current rules dictate just over half (51%) are actually required by regulators to get them.

Paul Went, Product and Markets Director at Shawbrook Bank says:

“The study reveals borrowers in Scotland are generally taking out smaller loans than households in other parts of the UK, while they also represent a smaller percentage of their annual income. But clearly Scottish borrowers may not be aware that they could be paying more for their loans than they bargained for.

“There is clear disparity between so-called representative rates and the rates borrowers actually end up paying. This is leading to confusion among loan applicants we surveyed in Scotland and is, arguably, misleading borrowers.

Went continues: “The growing scale and significance of the personal loans market means that it’s more important than ever to ensure loan applications are as transparent as possible for people. A widening gap between expectation and reality when it comes to loans is bad for all concerned. 

Went concludes: “We believe that’s the wrong way to do things and two thirds of the borrowers we surveyed strongly support that view. As a result we are making a clear commitment to how we advertise and market our personal loans, and hope that this will lead other lenders to consider the approach they take. Our new Charter includes five clear promises to ensure that people don’t feel misled when they come to Shawbrook.” 

To view Shawbrook’s Transparency Charter and its five promises to prospective borrowers in full visit: www.shawbrook.co.uk/transparency

[1] Based on the latest available data from UK Finance, which was analysed by the Cebr