Affordability Solutions

Central to responsible lending is an assessment of customer affordability. Recent guidelines from the Office of Fair Trading and similar sentiments are expressed in the FSA’s Mortgage Market Review consultation paper. It’s the lenders responsibility to ensure that their affordability assessments are as accurate and robust as possible. Regulation and the state of the economy mean it is now essential for lenders to make accurate and realistic judgements of a consumer’s ability to fund debt, both in the short and long term.

Measuring a customer’s affordability using robust processes will ensure that your customers can not only pay you back at the start of the loan, but can continue to keep up payments in the future. That means assessing a whole range of ‘affordability indicators’ in order to determine any borrower’s ability to keep up repayments under existing conditions and in the event of ‘future shocks’. Credit limits must therefore be set in line with the borrower’s current disposable income and any reasonable expectations of future disposable income.

Many credit providers are now sharing current account turnover data (CATO) with Experian, which represents a step forward for the estimation of income and affordability. CATO data offers the possibility of a more reliable source of income information and this new data will be used as part of the solution to verify incomes stated on credit applications. Using a combined view of income information from across the industry Experian can verify, or provide a confidence score for declared income. This enables lenders to create an accurate forecast of affordability by using verified income against credit commitments. The greater the level of data shared by the lender, the greater the insight the lender can access.