Podcast ¦ RO-AR.com: Being Up to Date – Current Trends in Affordability

Key Takeaways

1. The cost of living crisis has led to a significant shift in expenditure patterns, particularly impacting lower-income households.
2. Energy and food expenditures have changed significantly, with lower-income households disproportionately affected by inflation.
3. Higher-income families can adjust their spending habits more flexibly, while lower-income households are constrained to essential items.
4. The recency and granularity of data is crucial for lenders to understand current consumer behavior and affordability.
5. Household budgeting adjustments are necessary for lower-income families who cannot further reduce essential spending.
6. Energy prices show increasing trends, and many expect a long-term shift towards higher expenditure levels.
7. The ability for lenders to accurately model affordability is essential, especially in the context of rising interest rates and inflation.
8. There are ongoing risks for households with children, who are facing disproportionate pressures in managing their budgets.
9. Lenders’ traditional reliance on historic government data may not effectively capture current economic realities.
10. Phenomena such as hybrid working are expected to have lasting effects on consumer spending and structure, including vehicle ownership.
11. A proactive approach towards understanding affordability can prevent financial distress and help lenders optimize customer outcomes.
12. The future economic landscape may be smoother but is unlikely to revert to the lower cost structures seen pre-crisis.

Key Statistics

• Inflation remains above the target level of 2%.
• Recent wage increases in the private sector are around 6%, while public sector wage increases are approximately 4%.
• Less than 10% of households in financial difficulty have two cars, compared to about 35% before the lockdown.

Key Discussion Points

1. The disproportionate impact of inflation on lower-income households compared to higher-income households.
2. The change in consumer behavior regarding energy and food spending due to the ongoing cost of living crisis.
3. The importance of recent data collection for understanding current consumer financial health versus relying on historical data.
4. The expectation that energy prices may not return to pre-crisis levels, indicating a structural change in household expenditure.
5. The cumulative effect of smaller increases across various sectors leading to significant economic pressure on lower-income households.
6. Evaluation of stress-testing approaches for lenders amid the evolving economic landscape.
7. The challenges of modeling affordability in a continually changing environment.
8. The need for lenders to address the risks of credit provision to vulnerable households proactively.
9. The impact of hybrid working on consumer expenditure trends and household mobility.
10. Acknowledgment that economic downturns have unique drivers, but loss emergence patterns remain consistent across downturns.
11. The rising concern about unsecured credit usage and its implications for future financial stability.
12. The critical role of lenders in measuring and responding to customer affordability on an ongoing basis.

Podcast Description

In this podcast, Andy Johnson, a client partner at Foremost, discusses the emerging risks and trends in consumer affordability amidst the ongoing cost of living crisis. With insights drawn from recent data, he explores how changing expenditure patterns affect lower-income households and the challenges lenders face in understanding current consumer behavior.

The conversation delves into the significance of timely data, the lasting impacts of hybrid working, and the broader economic landscape. Join us as we uncover valuable insights into the complexities of affordability, risk management, and the future direction of financial services.