Banks face £1.7bn loss linked to car market

BANKS risk losses of around £1.7bn if the value of second-hand cars keeps falling, the Bank of England has warned.

About £17bn of major banks’ cash is directly exposed to the ballooning car finance market – and there are fears it is heading for collapse. Up to 10pc of that could be wiped out if the market keeps going downhill, the Old Lady’s experts said yesterday.

There are growing fears that far too many people are buying cars on credit, fuelling a debt boom.

Most do so through personal contract plan deals, making monthly payments for a fixed term.

At the end, they get cash to put down as a deposit for another car based on their current vehicle’s value in the second-hand market.

The lender makes a loss if the value of the car being returned has fallen more sharply than expected.

Experts say newer used cars are losing value faster than ever. A vehicle under two-and-a-half years old is reportedly worth 57.6pc of its original value, down from 61.1pc in 2014.

The fall is expected to continue as more and more cars come off three-year credit deals.