As high interest rates push the cost of living crisis into the summer months, research has shown that demand for pawnbroking has hit “record levels” in Britain because of a shortage of alternatives.
According to the boss of the UK’s biggest operator, H&T Group, pre-tax profit rose 31% to £8.8 million in H1 of 2023 compared with 2022, while its “pledge book” — loans against customer assets such as jewellery and watches — was worth £114.6 million in June, up from £85.1 million in the same month last year.
Demand had reached “record levels” partly because of a lack of alternatives.
“Supply of small-sum credit is constrained now in a way it hasn’t been for many years,” says Chris Gillespie, Chief executive, H&T Group.
“If you only want and need to borrow £200, your options are very limited.” He added that “to a degree” the rise in demand for pawnbroking was also because of the high cost of living.
The high-cost credit market, which grew out of the financial crisis to serve customers who were not eligible for bank loans, has shrunk dramatically in recent years because of regulatory action.
According to data from the Financial Conduct Authority, the number of high-cost credit providers fell from 106 in Q3 of 2016 to 39 in the same period last year.
Payday lender Wonga collapsed in 2018, while guarantor loan provider Amigo announced it was winding down in March. Provident Financial shuttered its 141-year-old doorstep lending business in 2021, and was renamed Vanquis Banking Group in January.
Pawnbroker Ramsdens has also benefited from the loss of competition. The UK-listed company said pre-tax profit in the six months to March rose 68% to £3.7 million on a 33% rise in revenue.
“There is a lack of small-sum, short-term credit,” said chief executive Peter Kenyon.
“Home collected credit has been decimated, payday lending has been decimated — so the customer has fewer options.”
However, he also said the business saw the effects of rising prices. “It’s clear that bills are higher, because we see that with our median loan increasing from £150 to £170.”
Pawnbrokers, which are licensed by the Financial Conduct Authority, offer interest rates that are generally lower than payday lenders but higher than bank loans.
Prior to its collapse, payday lender Wonga generated controversy for offering loans at more than 5,000 per cent APR.