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On the plus side of the equation, we have the government’s recently-an- nounced energy grant of £400 per household (with those on means-tested benefits receiving £600 on top), which is going to take the edge off energy costs for many. However, we should not lose sight of the fact that there will remain, even after this handout, a large number of income earners who are going to take a considerable hit to their wallets when energy bills hit the doormat. Graphs show that this is going to impact those households on lower incomes far greater than those on higher. Add housing costs (mortgage, rent and council tax) into the mix of those house- holds in the bottom 10% whose total annual disposable income is £13,550 (after tax and National Insurance) and there won’t be an awful lot left.
It hardly goes without saying that this has the potential to subject lending decision-making to a considerable level of stress testing. Borrowers with untarnished credit his- tories may suddenly find themselves unable to keep up loan payments as their disposable income shrinks, while prospective clients who would previous present as low risk may be anything but. In such an environment, lenders will have to be extremely vigilant when man- aging their loan books and making new lending decisions. While sales teams are given the opportunity to shine during the good times, it is in times such as these that the quality of the back office is truly tested. It can literally mean the life or death of a business. Expertise and systems that usually work fine during economic upturns are put to the test when there is a down-
turn and can come up short. Reliance on systems that are overly dependent on what is essentially partial or histor- ic data are not going to be up to the complex changes that the economy and individuals are going to experi- ence. Underwriting teams will have to contend with sudden changes to per- sonal circumstances. This will equally apply to commercial lending. Sectors that fared well pre-Cov- id, such as entertainment and hospitali- ty, may struggle as discretionary spend shrinks in response to unavoidable expenses. As with individuals, busi- nesses may suddenly find themselves unable to meet financial commitments as a result of static or shrinking income. Ideally, lenders want to be able to recal- ibrate their scorecards and appetite for risk on an almost daily basis as the lending environment changes. They also want spot-on affordability assess- ments with the applications that come in. Thankfully, this is now possible thanks to the technological advances that have taken place since the last downturn. Where, in the past, timely, high-quality data was virtually unobtainable, today fintech suppliers such as LendingMet - rics have made it easily accessible, and in an instant.
Above: LendingMetrics' Commercial Director David Wylie
www.lendingmetrics.com
Metrics Monthly | 15
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