Three reasons to be cautiously optimistic

With higher interest rates, a cost-of-living crisis, a jump in mortgage rates and the UK economy experiencing a technical recession, lenders will naturally be concerned about how British consumers are coping financially. But our affordability update indicates that they can be cautiously optimistic.

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The latest data – based on figures from the final quarter of 2023 – provide three good reasons why lenders should be cautiously optimistic:

Inside pages of Affordability Update
  • Income is continuing to rise (although the rate of growth is slowing down)

    Perhaps the most significant factor in the financial resilience that we are seeing, is that incomes are continuing to rise.

  • Consumers remain financially resilient and risk remains identifiable

    For many households, their largest monthly expense is their mortgage payment. As more people come to the end of their historically low deals, they are having to move from mortgages of around 1-2% to something in the region of 4-6%.

  • Contracted payments have risen 8%, but delinquency rates remain stable

    Contracted payments are loan repayments plus any minimum credit card payments that consumers must pay every month. During 2023 these rose steadily, reflecting rising interest rates.

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Experian Affordability Update - Q4 2023

People are re-engaging with credit cards

During Q4 2023, fewer people had a zero balance on their credit card than the previous quarter, which indicates more people are spending on credit cards.

The vast majority are not on a promotional rate and so are gaining interest on any balances. Given delinquency rates remain stable, and the vast majority are effectively managing their spending, it suggests a renewed confidence in the credit card market itself following an unstable period with high interest rates.

Comparing year on year, the average credit card spend has increased by 9% (£30) from £339.45 to £370.66. Importantly, the average payment amount during the period has also risen. The average payment amount is, however, slightly lower than the average spend, which means that credit card balances are growing, and is something that should be monitored by lenders to ensure any credit is always affordable.

Younger people have increased their credit card spend dramatically

Younger people have increased their spend proportionately more than older people (although in absolute terms, their levels of credit card spending are still lower).

In percentage terms, these figures appear dramatic. 25-29 year olds increased their credit card spending by 30%, whilst 18-24 year olds increased theirs by 57%. In absolute terms, this represents a monthly spending increase from around £200 to just under £350.

The largest percentage increases in credit card usage are younger people, lower income and lower risk individuals

Graph showing credit card usage by age of customer, this year compared to last year

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Read our paper to find out the key consumer affordability trends in detail, deep insights on specific customer segments, and understand the areas of the UK that are particularly affected by the trends.

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