Affordability assessment (Affordability check)

An affordability assessment is how a lender decides whether a borrower can sustainably meet the repayments on a credit agreement without that lending causing them harm. It is distinct from a creditworthiness or risk score: a risk score estimates the likelihood of default, while affordability asks whether the repayment fits the borrower's real income and outgoings over the life of the agreement.

What the FCA expects

For most consumer lending in the UK, affordability assessments are governed by the FCA's Consumer Credit sourcebook (CONC). CONC requires a lender to carry out a reasonable assessment of a customer's ability to repay, proportionate to the size, cost and type of credit. The Consumer Duty raises the bar further: lenders must be able to show they have acted to deliver good outcomes and avoid foreseeable harm, which includes not lending to someone for whom the repayments would be unsustainable.

“Proportionate” is the key word. A small, low-cost agreement may justify a light-touch check, while a large or long-dated commitment calls for a fuller view of income and committed expenditure. Relying on a bureau score alone, with no view of the customer's actual disposable income, is rarely enough for higher-value lending.

How an affordability assessment is built

A robust assessment combines several data sources into a single view of the household budget:

• Verified income — salary, benefits, pension or self-employed income, confirmed from bank data rather than taken on trust from a stated figure.
• Committed expenditure — rent or mortgage, utilities, existing credit commitments, insurance and other regular outgoings.
• Essential living costs — food, transport and other day-to-day spending, which Open Banking data can evidence directly.
• Headroom and stability — whether income is regular, whether the account shows signs of financial stress, and how much disposable income remains once the new repayment is added.

The output is not a single number but a judgement: does the customer have sustainable headroom to take on this repayment, and what is the risk that affordability tightens over the term?

Why stated income is not enough

Historically, lenders asked applicants to declare their income and estimated expenditure from averages or bureau data. That approach misses the detail that matters — irregular income, a recent change in circumstances, gambling or high short-term credit use, or outgoings that national averages do not capture. Open Banking lets a lender see categorised transactions over several months, so the assessment reflects how the customer actually manages money rather than a self-reported snapshot.

Affordability and Consumer Duty

Under Consumer Duty, affordability is not a one-off gate at application. Lenders are expected to monitor outcomes across the portfolio, identify customers showing signs of difficulty, and act before harm occurs. A well-evidenced affordability assessment at origination, refreshed with real repayment and transaction behaviour, is the foundation for meeting that standard and for defending lending decisions to the regulator.

Affordability versus creditworthiness

It is worth separating two ideas that are often conflated. Creditworthiness asks whether a customer is likely to repay, based largely on past behaviour and bureau data. Affordability asks whether they can repay this agreement sustainably, based on their current income and outgoings. A customer can be creditworthy on paper — a clean bureau record — and still not be able to afford a particular commitment, and vice versa. A responsible decision requires both questions to be answered, not one standing in for the other.

Getting the budget right

The accuracy of an affordability assessment depends on how well the lender captures essential expenditure, not just income. National average figures for living costs can understate what a specific household actually spends, particularly where there are dependants, high rent, or existing commitments. Open Banking data lets a lender ground the budget in the customer's real spending rather than an assumed figure, which both protects the customer from over-lending and protects the lender from decisions that cannot be defended later.

The assessment should also consider resilience: what happens if income dips or a cost rises during the term. A repayment that only works when everything goes to plan is not sustainable, and lending into that position is the kind of foreseeable harm Consumer Duty is designed to prevent.