Borrowing Britain’s affordability challenge

In January 2014 Experian provided the BBC with new analysis highlighting where people in Britain are struggling to keep on top of their debts.

Using a combination of public records, lifestyle surveys and aggregated information from our credit reference agency about how we all pay our bills, we created a view of where people are likely to be struggling to keep on top of their debts.

Following several years in which inflation has outpaced income growth, there are many parts of the country in which residents are struggling with debt commitments:

  • Over half of residents in East London’s Cheapside, Stratford and East Ham areas – home to many young, single adults – have a high likelihood of debt difficulties
  • The squeezed middle seems most populous in the Erdington and Kings Heath areas of Birmingham. Up to 32% of middle income earners here are showing signs of financial stress
  • The small Welsh town of Merthyr Tydfil has the highest proportion of struggling older residents (just under a third of them could be experiencing difficulties)

This analysis starkly highlights the need for credit providers to really understand their customers, what they can afford and whether there is a need to provide a more suitable or more sensitive service to them.  As interest rates are set to increase, it has become even more imperative for credit providers to assess how much of an impact this could have on their customers and how quickly they will be able to respond to a sudden deterioration in financial circumstances.

Regulation has been a major driver in placing affordability high up on the priorities of mortgage providers given disposal income stipulations in the Mortgage Market Review (MMR).

It is also central to the Financial Conduct Authority’s responsible lending guidelines, while Conduct Risk recommendations have brought affordability to the forefront across the banking sector as a major component of assessing product suitability.

That’s why Experian has developed new analytical tools that look at a wide range of factors, including marital status, dependents and existing credit commitments, to provide more accurate expenditure estimations. Using a combination of shared data sources and extensive survey data to identify financial associations and analyse affordability at both individual and household level.

By bringing these together, clients are able to quickly validate income, predict expenditure and help more accurately and compliantly calculate current levels of disposable income – and whether customers can afford to cover additional credit.

Our ability to accurately assess debt to income ratios means clients can tailor their offerings based on individual customer circumstances.

For more information on Experian’s affordability services and how you can use them to better manage risk and regulation, please download our latest guide or contact us today.


About the author

Jonathan Westley
Managing Director, Experian Consumer Information Services

 Jonathan has over 25 years of experience working within the banking industry as well as consulting for financial institutions. Jonathan has been with Experian for nine years, setting up a consulting function within the Consumer Information business (CI), then leading our Product Management teams for two years before taking on overall responsibility for (CI) as Managing Director. Prior to working for Experian, Jonathan worked with Abbey for 10 years and spent five years with consulting firms CGI & FICO.