Assessing the top affordability trends of 2023

The top trend for Q4 2023: consumer income is rising

When it comes to consumer affordability, a lot can change very quickly – and especially in the current climate of high inflation and relatively high interest rates. However, our update shows that most consumers remain financially resilient in the face of rising mortgage and contracted payments.

This is, in large part, because increasing household income is now outpacing the rising cost of living – factoring in things like inflation, high interest rates, and fuel costs. Our data shows, for example, that the average increase in household income has been 11% based on comparing figures from October 2022 and August 2023.

While organic wage inflation is contributing significantly to this, along with increased earnings from interest on savings in certain sections of the population, the Experian Affordability Report (published in summer 2023) also found that consumers are taking proactive steps to increase their income. This found, for example, that 36% of employed people have increased their working hours to earn more, 13% have changed jobs for higher pay, and 9% had delayed their retirement plans.

Which consumers are benefitting most from rising income?

When it comes to understanding the impact of rising household income on affordability, not all consumers are in the same situation – which means detailed analysis of research by geography, consumer demographics and other factors is incredibly important.

This quarters update provides the granular data our customers need to navigate the market, identify new lending opportunities, and support more vulnerable consumers. The update shows that:

• There is a significant ‘north/south divide’ when it comes to rising income
  On average, our data shows that homes in the north of England have seen smaller than average increases in income when compared to the UK as a whole, with the northern counties of England and Scotland experiencing income increases far lower than the south and east of England.
• Households with more working-age people are benefitting far more from income increases
  We have seen that households in the UK have experienced higher or lower increases in income, depending on the mix of individuals who live in them. For example, our data shows that single-person households have seen the lowest rise in income of any household type at just 4% when comparing October 2022 to October 2023, while couples living together have experienced a 12% average increase in income, and households comprised of couples living with young adults (usually their working-age children), have seen the highest income increases at 17%.
• Different consumer segments have fared differently in terms of income increases
  We have ‘segmented’ consumers into different categories based on demographic, financial and other criteria. This approach reveals that some consumer segments – such as older people on state pensions and single earners in households – have seen smaller increases in income, while other, usually higher income consumer segments, have experienced higher percentage increases.

Most consumers are taking rising mortgage and contracted payments in their stride

Of course, rising income is only part of the puzzle when it comes to affordability, with other factors such as inflation and interest rates significantly impacting consumers’ finances.  Mortgages have increased by an average of 11% when comparing October 2022 and August 2023, with different consumer segments experiencing similar increases in their mortgages. We can also see that contracted payments (credit cards and loans) have increased by an average of just 6% over the period, with low delinquency rates and lower-than-expected new card applications.