Assess the affordability of each customer

Increased regulatory focus and rising interest rates mean lenders need to revisit their measures of affordability ahead of changes. Accurately assessing both customers’ affordability and suitability are essential requirements for all lenders who wish to extend credit responsibly while minimising their risk exposure.

Despite the recent economic upturn, disposable incomes remain depressed and are struggling to reach the levels seen before the credit crisis of 2007. There’s no guarantee that interest rates will remain at their current historical lows beyond the end of this year, and rising rates will impact a customer’s ability to pay.

Consequently, to lend responsibly requires an even better understanding of each customer’s ability to pay, which means implementing more robust measures of current and future affordability. The Financial Conduct Authority (FCA) has outlined the need to provide and undertake adequate affordability assessments, and there is an ever increasing focus on conduct risk.

These stricter requirements have put increased pressure on banks and other financial services providers to assess and continually manage their customers’ long-term affordability, in a bid to drive informed and responsible lending decisions. As lenders struggle to balance growth with risk, and consumers face stagnant disposable incomes, there is no doubt that making prudent lending decisions is more important than ever.

Failure to do so could put additional financial pressure on consumers and lenders at a time when the financial climate still looks uncertain. To find out more view our info-graphic by clicking here.