Credit reference agency Equifax UK has launched a new affordability tool for lenders.

The tool combines bureau insights with real-time transaction data which is accessed through Open Banking, as well as statistical estimates designed to improve affordability assessments.

The technology is built on algorithms designed to enable banks and other lenders to automatically choose the best possible source of data in order to meet Consumer Duty rules and provide an accurate assessment of affordability.

The Financial Conduct Authority's (FCA) Consumer Duty rules call on firms to consider their approach to affordability, with a particular focus on the requirement to avoid causing foreseeable harm through inadequate assessment.

Equifax estimates that using its data combination tool is likely to be more predictive of customers defaulting than using declared income and ONS calculations alone.

It predicts the tool could result in a 29 per cent uplift in lender approvals for low affordability customers.

“The rising cost of living as well as the new Consumer Duty standards are making more robust and accurate affordability assessments a top priority for lenders,” said Craig Tebbutt, chief strategy and innovation officer, Equifax UK. “Currently, lenders choose to rely on a range of different data sources to help understand consumer income and expenditure levels, which can include current account turnover data, self-declarations or government statistics.”

Tebbutt went on to say while each of these models has different strengths, a combination of these data sources is likely to provide "the most transparent view of financial health".

---