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:
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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
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