New findings from open banking platform Tink show that a significant number of lenders have not yet adopted affordability assessment models that would create fairer lending processes.
Against a backdrop of the cost-of-living and economic crises, the survey found that traditional lending models that provide a blinkered view of income and expenses are no longer fit for purpose.
Tink’s research reported that half of UK lenders are still not utilising technology in order to generate credit scores based on bank account data – while more than a third are not using it to assess expenses and overall affordability.
Tasha Chouhan, UK & IE banking and lending director at Tink, said: “It’s clear many lenders still rely on traditional credit checks to determine eligibility for loans.
“There is no place for such models in our current economic climate, and the sooner this is recognised, the better the outcome will be for both lenders and consumers.”
According to the survey, 68% of lenders have tightened affordability criteria since the pandemic, but blind spots still exist in their credit assessments, thus leading to some eligible borrowers being unfairly denied access.
Lenders say that some of the main reasons that people are denied credit include the inability to verify identity or legal status (41%) or the inability to access payment history (35%).
Mirroring these findings, another Tink study finds that consumers are also citing unfair assessments, as over a third of self-employed workers say their employment status has been an obstacle for them in getting a mortgage.
This research unveils two stark truths about traditional underwriting methods – firstly that some people who can afford credit are being excluded because of outdated scoring models and secondly that some consumers are not being protected in the face of affordability issues.
Advocating for the widespread adoption of new technology-based methods, Chouhan added: “New forward-looking models are drawing on open banking technology to provide a holistic picture of people’s finances.
“It’s vital to protect potentially at risk or vulnerable consumers from problem debt or default as the economic climate worsens [and] it’s key to promoting financial inclusion, as people now more than ever need access to safe, affordable, and regulated borrowing options.”