Despite falling new car sales (and possibly used car sales, but we await the final numbers), British car buyers were happy to plunge themselves ever further into car finance debt during 2017.
The final results for dealership car finance borrowing in 2017 have now been published by the Finance and Leasing Association, and show record levels of car finance debt for both new and used cars.
As car buyers continue to fall under the spell of low monthly payments offered by personal contract purchase (PCP) car finance plans, the total level of borrowing has kept ratcheting up despite fewer new cars being sold.
More than £34 billion of debt was taken on by buyers on new and used cars during 2017, with the last two months of the year showing no sign that the Bank of England’s interest rate rise in November had any effect on borrowing levels.
Cars bought on finance by consumers through dealerships
| New business | Dec 2017 | % change on prev. year | 3 months to Dec 2017 | % change on prev. year | 12 months to Dec 2017 | % change on prev. year |
| New cars | ||||||
| Value of advances (£m) | 1,102 | -9 | 3,926 | -2 | 18,784 | +2 |
| Number of cars | 54,589 | -15 | 198,222 | -10 | 990,029 | -7 |
| Used cars | ||||||
| Value of advances (£m) | 971 | +8 | 3,633 | +14 | 15,436 | +12 |
| Number of cars | 81,488 | +3 | 309,269 | +8 | 1,357,216 | +6 |
| Total cars | ||||||
| Value of advances (£m) | 2,074 | -2 | 7,559 | +5 | 34,220 | +6 |
| Number of cars | 136,077 | -5 | 507,491 | 0 | 2,347,245 | 0 |
Data (c) Finance and Leasing Association
New car finance: sales down, borrowing up
December’s new car finance results followed the pattern of the rest of the year as could be expected. The number of new car finance deals fell by 15% compared to the previous year in line with the recorded decline of 15.9% in private new car sales, but the total amount borrowed only fell by 9%.
That means that the average borrowing per car increased by 7% compared to the previous December, and finally breached the £20,000 mark in December as we predicted, having been building up to it for several months.
Over the course of the whole year, new car finance deals dropped by 7%, corresponding precisely with a fall in 7% in private new car sales. This is not surprising, as 88% of all new cars are financed from the dealership (a figure which remained constant from the previous year). However, overall borrowing increased by 2% for the year, with £18.7 billion lent by dealer-brokered finance companies to new car buyers.
Used car finance: up and up and up
Used car finance continues to break records every month, for both the number of deals and the value of those deals. December was no different, with a 3% increase in the number of used car finance deals being agreed and an 8% increase in their value. The average borrowed per car is just under £12,000 per car.
Used car sales figures for the last quarter of 2017 have yet to be published, but the finance results suggest that we can expect no more than a minor drop at best.
Looking at the whole year results for 2017, the number of used cars with finance arranged at the dealership increased by 6% to a record 1.35 million. The amount borrowed, however, increased by 12% to more than £15.4 billion.
Interest rate rise showing no signs of impact
This is now the second month of car finance results since the Bank of England increased interest rates from 0.25% to 0.5% last November, and the data suggests that it has made no difference to car finance borrowing.
In fact, with Bank of England governor Mark Carney this week suggesting that interest rates could be going up again soon, we could potentially see a rush on car finance borrowing in coming months, as car buyers look to lock in finance deals with lower rates before the increases hit.
As car finance loans and most personal loans have a fixed interest rate for the life of the loan, it’s possible we could see dealers encouraging car buyers to borrow more money over a longer term to take advantage of these historically low rates.
As usual, it would be short-term thinking at the expense of longer-term sustainability, but that’s what car dealers do best…
