Pawnbroking surges in UK amid cost of living squeeze

The customers that walk through the doors of Ramsdens pawnbrokers use the lending service in starkly different ways.

“We’ve got a very good customer [with] a platinum Rolex, which is probably worth about £50,000 [or] £60,000,” said Peter Kenyon, the company’s chief executive. “He’s a builder and when his cash flow is short he gives us the Rolex, borrows between £10,000 and £20,000 . . . pays interest at 2 per cent a month, then pays us back when his cash flow improves.”

But Kenyon noted the chain also assists customers who need small sums because they’ve “got to feed the kids, or buy the school uniform”.

The UK’s pawnbroking sector is reporting strong post-coronavirus lockdown growth, as rapidly increasing living costs boost demand from borrowers seeking small loans, while a crackdown on high-interest lenders has left customers with limited options. Listed companies that offer “pledge lending” — typically small loans secured on assets such as jewellery and watches — have reported strong growth in sales and profits, boosting their share prices in recent months.

Shares in H&T Group, the UK’s largest pawnbroker, have risen 37.6 per cent this year, while those in rival Ramsdens are up 8.6 per cent over the same period as of the close of trade on Monday.

Kenyon said weekly customer numbers within Ramsdens’ shops were 20 per cent higher than pre-pandemic levels: “A lot of that is driven by what the consumer [is] facing and the cost of living increase, but we lend for a raft of reasons — we do lending to businesses . . . we’ve lent for school fees.”

H&T this month said its pledge book — loans linked to a customer’s asset — was worth £84mn in June, up sharply from £48mn in the same month last year.

“The cost of living, yes, absolutely that’s driving the need to borrow, but I think the larger of the two issues is that people have got less options open to them,” said H&T chief executive Chris Gillespie. “The need of people to borrow has returned . . . but that need has returned into a market where the supply of small sum credit is massively reduced.”

Line chart of Share prices rebased showing 'Pledge lending' boosts UK pawnbrokers

He added that the clear difference between pawnbroking and most other forms of lending was that “our only recourse is to the asset . . . we don’t and can’t ever go back to the borrower if there’s a shortfall [in repayment]”.

However, like other forms of lending there are risks associated with using pawnbrokers.

“Using a pawnbroker can be a relatively expensive way to borrow and you can usually only borrow a percentage of the value of the item you want to pawn,” said Caroline Siarkiewicz, chief executive of the Money and Pensions Service, which is sponsored by the UK’s Department for Work and Pensions.

Consumers can expect to pay a pawnbroker a higher rate of interest than they would for a high street loan — but less than a payday lender, according to the Money and Pensions Service.

If a borrower fails to repay the loan, ownership of the asset passes to the pawnbroker, who could sell it. They have to try to secure the best value for the item, and any surplus generated after the debt is paid must be returned to the customer.

Ramsdens said pawnbrokers typically charged 8-10 per cent a month. Customers have six months to repay their loan and more than 95 per cent pay the full loan back in one instalment.

Siarkiewicz noted that this method of borrowing can be tempting “because it is a quick way to get access to cash”. But she stressed it was important customers “shop around to find the most competitive rates and make sure they’re FCA regulated”. 

Around 130 members of the National Pawnbrokers Association run 870 outlets around the UK, accounting for 97 per cent of the industry. The largest brands are H&T, Cash Converters and Ramsdens, but most members run just a single store.

Many of those companies have benefited from the demise of subprime lenders or non-standard finance providers, which prospered after the 2008 financial crisis, as mainstream banks became reluctant to lend to consumers with blemished credit files.

Ramsdens said it ended its own payday lending offering when market conditions shifted.

“It was scary where the pricing had got to, so people would borrow £100 and have to pay back £140,” said Kenyon.

The Financial Conduct Authority clamped down on the sector in response to fears about rising levels of consumer debt. The number of active high-cost, short-term lenders in the UK fell by almost a third between 2016 and the third quarter of 2020, according to FCA figures.

“The FCA have regulated the market almost to death,” added Kenyon.

Wonga, once the UK’s largest payday loan provider, filed for administration in 2018 after a surge of customer complaints. Provident Financial, one of the largest participants in Britain’s subprime market, shut a unit providing “high cost lending” last year.

Amigo Loans, which offers “guarantor loans” backed up by a borrower’s friends or family, has also been out of the market. The group is awaiting FCA approval to recommence lending for the first time since November 2020 following a backlog of complaints and uncertainty caused by the pandemic.

There are now concerns that people struggling to access credit may turn to buy now, pay later services, a type of short-term lending that allows consumers to pay for purchases in instalments.

These services boomed during the pandemic as online shopping surged. However, according to polling data from debt charity StepChange, half of those with buy now, pay later loans in the UK said they found it hard to keep up with household bills and credit repayments.

Debt charities have also raised concerns about the increased use of pawnbrokers.

“With everyday costs soaring it’s no surprise to hear more people are using pawnbrokers,” said Theodora Hadjimichael, chief executive of Responsible Finance. “But you shouldn’t need to put your wedding ring or a family heirloom at risk to pay an unexpected expense.”

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