Credit & Affordability Insight

Essential expenditure and disposable income verification

Affordability isn’t just about income verification.  A consumer may have a large, verified income but may also have several credit commitments, resulting in high indebtedness and a low capacity to afford credit.

Accurately understanding a consumer’s non-discretionary expenditure, essential spending on key items necessary for daily existence, helps to calculate the disposable income available to them.  Without a view of a consumer's regularly committed expenditure, it is impossible to accurately determine their affordability and ability to pay while maintaining a reasonable standard of living.

But verifying consumer expenditure can be tricky; accessing this information takes lots of time and resources. People may not always provide a full view of their spending habits and not everyone is aware of how much their essential spending is, plus expenditure can change over time when changing jobs, moving house, or having a baby, which makes it difficult to get an accurate picture.

Affordability Passport enables a consumer to consent to share their bank transaction data in a single data passport to show their income, expenditure, and credit commitments so you can accurately estimate and evidence a consumer's non-discretionary expenditure quickly, supporting affordability assessments across the lifecycle based on the consumer's ability to pay.

Further reading on essential expenditure  and disposable income

Getting affordability decisions right

How to stay ahead in the mortgage market by saying goodbye to payslips

Lend smarter, support better: Automated insights from categorised credit card expenditure analysis

Monitor affordability

It is essential to continuously monitor a consumer’s affordability and wider financial situation to ensure they can continue to meet their obligations. Without ongoing monitoring, it is difficult to spot changes in behaviour or signs of financial stress, consumers that need support may not be identified, which in turn could lead to delinquency and financial detriment.

Affordability assessments require time and resources to maintain, particularly as models need regular updates to reflect changes that may impact a consumer's essential expenditure.  Often a consumer's financial situation changes over time, making it a challenge to keep up to date.

With Affordability IQ you can proactively monitor a customer’s affordability, react quickly to financial changes and support those who need it, with a range of data throughout the lifecycle.

Identify when a consumer's current account balance is reducing or they’re regularly using an overdraft with Balance insights.  Identify consumers with low financial resilience using Indebtedness Metrics and recognise changes in income throughout your relationship utilising Income Shock and Stability metrics.

Further reading on monitoring affordability

Getting affordability decisions right

Lend smarter, support better: Automated insights from categorised credit card expenditure analysis

Supporting vulnerable customers

Due to the current volatility of the UK market and increasing financial pressure on household budgets, means a consumer’s financial situation could change quickly, which makes measuring affordability and potential vulnerability a challenge

Access a range of insights and tools to monitor financial circumstances, manage risk and know when to take the right action at the right time to support those customers who need it most. 

Further reading on the impact of the cost of living crisis

Consumer Duty Regulation for Credit Risk

How are customers keeping up with essential bills during the cost-of-living squeeze?

Assessing Affordability: A Guide to Vulnerable Consumers and Responsible Lending

FCA Consumer Duty, CONC and MCOB

The new FCA Consumer Duty regulation requires firms to put in place robust personalised affordability assessments to drive the best outcomes for consumers.

The duty sets standards to ensure the protection of consumers when requiring financial services, ensuring that a consumer’s income and expenditure have been verified or reasonably estimated and considered when offering the consumer, a service or credit.  To comply with the Consumer Duty regulation firms must evidence their affordability processes, ensure any agreements are affordable throughout the term and that consumers are supported and not put at risk of any financial harm.

FCA MCOB guidelines

The MCOB guidelines are for lenders who regulate mortgage contracts and home purchase plans. They are used to assess consumer affordability when buying a house, ensuring the consumer understands the contract terms, repayments are affordable and they avoid financial harm, throughout the term.

FCA CONC guidelines

The CONC, consumer credit source bank, guidelines are for lenders who provide credit-related activities to consumers. To remain compliant lenders must accurately assess a customer's affordability, ensure they understand the loan terms and adhere to Consumer Duty requirements.

Our Affordability solutions offer insights tailored to help you respond to market, economic and regulatory changes so you always have a current view of an individual’s financial situation, today and throughout your relationship so you can remain compliant and make the right decisions at the right time.

Further reading on affordability compliance and regulation

Consumer Duty Regulation for Credit Risk

Getting affordability decisions right

How to get commercial affordability right

For commercial lenders, assessing affordability is more challenging than ever due to soaring inflation, rising interest rates, high energy costs and a range of other factors.

To ensure that business customers are resilient in terms of their ability to pay, lenders need a ‘full picture’ view of affordability based on comprehensive data, advanced analytics, and forward-looking macroeconomic forecasts.

Assessing the affordability of facilities for commercial customers has always been a significant challenge with multiple, complex factors to consider. As well as accurately assessing a business customer’s turnover, costs, and existing debt obligations, lenders need a clear view of other factors such as asset depreciation, the drawing down of dividends by company directors, and more.

Unfortunately for lenders, though, the current inflationary climate – and in particular factors such as high and rising energy prices and low consumer confidence – are making affordability even more difficult to calculate. Not only that but unusually volatile ‘cost-of-living’ and ‘cost of doing business’ factors mean that what’s affordable for commercial customers today may test their resilience and ability to pay over the entire lifetime of a facility.

With this multi-dimensional complexity affecting affordability for businesses of all sizes and all sectors, a highly comprehensive approach is needed to ensure the accuracy and efficacy of credit decisions. This should be based on a ‘full picture’ view of a business’s financial status and resilience based on a granular analysis of all known affordability vectors.

Further reading on commercial affordability

Commercial affordability for financial providers

The importance of full-scale commercial affordability

The need for a full picture of commercial affordability was demonstrated recently in a case encountered by Experian. In this example, the prospective customer’s business turnover was equal to around £30 million according to the annual accounts, which were confirmed with Current Account Turnover (CATO) data.

However, Credit Account Sharing Information (CAIS) also showed that the company was servicing over £90 million of active debt – all on either three or four-year repayment terms. This sum was understated in the company’s reported liabilities. These insights revealed that the customer’s debt-to-income ratio was over 300% – a particularly worrying figure considering that the average term of the debt was around three years.

Finally, the Debt Service Ratio was over 100%, meaning that all of the company’s revenues were required just to support the existing debt repayment obligations. This case demonstrates the critical need for a full picture of affordability before any lending decision is made, showing how access to the right data and insights can prevent significant losses based on fair, timely, accurate affordability assessments.

Further reading on full-scale commercial affordability

Infographic: Seeing the full picture of a business to get commercial affordability right

Blog: Seeing the full picture in commercial affordability