Household budgets have substantially changed over recent years - what now determines affordability?

Claire King, Insight Manager, Money Advice Trust Jane Tully, Head of Insight and Engagement, Money Advice Trust Martin Roseweir, Managing Director, Allied International Credit

Presenters:

Yvonne MacDermid OBE, Chief Executive, Money Advice Scotland

Facilitator:

Vanora McCullagh, Creditor Liaison Manager, Debt Advisory Line and representing MALG’s Midlands Discussion Forum

Scribe:

Inflation has outstripped wages

Rising costs of living: Rent !   More people are struggling with

rent arrears

!   Growth in demand for private rented properties. Private renters now the 2nd largest tenure in England

!   Renters (private and social) tend to spend proportionally more of their income, on housing than mortgagors

!   Cost of renting privately is soaring

!   For those renting socially, welfare reforms are having an impact on capacity to meet rent payments

Rising costs of living: Mortgage !   Propor%on  of  households  in  

mortgage  arrears  and  possessions  rose  steeply  following  the  crash  in  2007,  but  is  slowly  declining      

!   Mortgage  holders  have  been  protected  by  low  interest  rates  in  recent  years,  but  many  may  not  be  able  to  swallow  a  rise  in  interest  rates    

!   Those taking out mortgages now are paying more than before

Rising costs of living: Council Tax !   Council tax arrears are our

fastest growing debt for the past 2 years.

!   May partly be due to changes in council tax benefit impacting on low income households

Impact on debt Propor%on  of  Na%onal  Debtline  clients  who  in  arrears  with  household  bills  

The changing debt landscape    

   

A new model of debt problem !  ShiA  from  ‘change  of  circumstance’  focused  to  ‘deficit  budget’  focused  model  of  debt  problem  

!  Households  are  puFng  themselves  at  financial  and  personal  risk  in  an  aHempt  to  cut  back  

   

   

Propor%on  of  households  in  each  income  quin%le  without  home  contents  insurance  

Determining affordability: why a budget works

!  Opens up discussion !  Gives clarity !  Provides transparency !  Drives an holistic

approach !  Supports long-term

financial wellbeing

Determining affordability: a common approach

!  The role of the Common Financial Statement

!  A new Single Financial

Statement

 

 

Journey  of  assessing  affordability  

Total  Expenditure  Disposable  Income    

How  do  we  validate?      

•  Trust  

•  Conversa%on  

•  Sustainability    

•  Compliance    

•  Training  (Ques%oning  and  understanding  household  budgets)  

•  Debt  Advice  Audits    

•  Common  Financial  Statement  

Why  is  understanding  affordability  important?  •  TCF  Trea%ng  Customer  Fairly  is  now  embedded  into  organisa%ons  and  really  adds  emphasis  on  how  we  deal  with  customers    

•   Regula%on    CONC  sourcebook  sets  the  expecta%ons    

•   Sustainability  Reducing  unnecessary  contact  with  the  customer  due  to  non-­‐payment      

•   Signpos%ng      Ensures  the  customer  is  aware  of  all  op%ons    

How  do  we  make  it  work?    Agency     Customer    

•  Repayment  book    

•  Absorbing  upfront  costs  

•  Increasing  and  developing  training  

•  Recruitment  process      

•  Peace  of  mind    

•  Affordable  /  Sustainable    

•  Trust  

•  Improving  percep%on  

Impact  of  Reducing  Disposable  Income?      

In  the  last  18  months  our  average  payment  has  decreased  from  £25.60  to  £22.27    

   

We  have  14.21%  of  customers  dealing  with  a  financial  advice  company  compared  to  12.55%  12  months  ago  

     

Repayment  Value  Variance            

Fee  Charging    Fee  Charging  

Free  Money  Advice   Fee  Charging  

Free  Money  Advice   Fee  Charging  

Free  Money  Advice  

£19.68   £20.97  £23.04  

£25.04   £26.27  £28.49  

£35.70  

What  %  of  a  customers  disposable  income  

should  be  accepted  as  a  repayment?    

What  is  acceptable  as  expenditure  on  a  

Financial  Statement?