November’s rise in interest rates by the Bank of England appears to have done nothing to slow the increase in car finance debt, according to the latest lending results published this week by the Finance and Leasing Association (FLA).
November 2017 results show that the same pattern is continuing – the number of new car finance deals dropped in line with new car sales, while the amount of money being borrowed per car broke new records despite increasing interest rates. Meanwhile, used car finance continues to grow rapidly in both the number of deals and amount borrowed.
Car dealers and manufacturers might be grumbling about the drop in customer numbers over the last nine months, but their finance companies are still lending billions of pounds to buyers, with November’s results setting new records.
| Cars bought on finance by consumers through dealerships | ||||||
| New business | Nov 2017 | % change on prev. year | 3 months to Nov 2017 | % change on prev. year | 12 months to Nov 2017 | % change on prev. year |
| New cars | ||||||
| Value of advances (£m) | 1,385 | +2 | 5,627 | +1 | 18,413 | +2 |
| Number of cars | 69,287 | -8 | 284,432 | -9 | 974,049 | -7 |
| Used cars | ||||||
| Value of advances (£m) | 1,237 | +16 | 3,866 | +13 | 15,003 | +11 |
| Number of cars | 104,683 | +10 | 331,601 | +7 | 1,322,786 | +6 |
Data (c) Finance and Leasing Association
The number of new private car sales fell by 5% in November, according to SMMT data. This was mirrored by an 8% drop in the number of finance deals on new cars, according to the numbers from the FLA. However, the amount of money lent to car buyers increased by 2% compared to the same month in 2016, meaning that the average borrowing for a new car reached a new record of £19,989.
86% of all privately-purchased new cars are financed at the dealership, with the vast majority of those being financed via a personal contract purchase (PCP).
For used cars, both volumes and total borrowing continue to increase rapidly. November saw a 10% year-on-year increase in the number of used cars financed by dealers, with the amount borrowed growing by 16% over the same month in 2016. This also meant that average borrowing hit a new record of £11,817 per used car. Used car lending for 2017 has already reached a new record of more than £14 billion, with one month of results still to be calculated. 2016 was previously a record year, with £13.5 billion lent to used car buyers.
Record lending will fuel fears of overheated car finance market
With December results still to be announced, it is certain that the overall 2017 results will show a record amount of money being lent to both new and used car buyers, despite the drop in new car sales. Average borrowing has also increased in December every year for the last seven or eight years, so it is entirely possible that we may see average borrowing break the £20,000 mark for new cars and £12,000 mark for used cars at the same time.
This is not exactly the news that the Financial Conduct Authority (FCA) or the Bank of England will have wanted to see, after the BoE increased its official interest rates at the start of November. With the Bank’s base rate increasing from 0.25% to 0.5%, finance companies have been quick to pass on rate increases to customers. Yet the amounts being borrowed continued to increase, which will no doubt fuel concerns that the car industry is failing to adequately regulate its own lending behaviour.
