The cost of living is at the forefront of many consumers’ thoughts, with energy prices increasing significantly, as well as the cost of petrol and food continuing to rise. Understandably, with the stress on customers’ pockets expected to last for the foreseeable future, lenders are keen to understand and brace for the impact on their loan books.
Understandably, with the stress on customers’ pockets expected to last for the foreseeable future, lenders are keen to understand and brace for the impact on their loan books.
Vestigo have been working closely with clients, and while performance has not begun to materially deteriorate yet, we are seeing lenders act quickly to understand and mitigate this phenomenon both for new and existing customers.
Lenders are considering broad changes to underwriting processes, such as policy rule adjustments, pricing optimisation, and increased automation. However, to ensure our clients can continue to lend responsibly, even through this period of increased consumer stress, a key focus point is affordability.
Some of the measures that credit providers are using include:
It is not just the affordability of new lending that is put under pressure by the current climate. Credit providers are paying close attention to existing customer circumstances, to ensure adequate support is provided.
We have seen the following initiatives in portfolio and arrears management:
Historically, defaults could for the most part be linked to life events, such as unemployment, severe injury or illness, or family circumstances. However, the cost-of-living crisis creates a sustained stress on customer affordability that is unlike those observed in previous recessions. A customer’s ability to mitigate the increase in cost of living month-on-month is dependent on both income and level of savings, so it is vital that lenders focus their efforts on identifying and supporting the most vulnerable individuals.
In time, wage growth should begin to catch up with inflationary pressures. However, this is unlikely to be the case for all sectors, with public vs private sector expected to be a key differentiator for this issue. Whatever happens, recovery will take time, so preparing for this sustained stress is vital.
If you are interested in finding out how Vestigo could help your business adapt to the current environment, please get in touch
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