Slowing sales fuel fears over risky vehicle finance deals

FlAGGING sales of new and used vehicles in the uK have sparked fresh concerns about risky car finance deals.

The number of new cars bought on credit in the three months to June was down 16pc on the same period last year, according to the Finance & leasing Association (FlA).

Separate figures from the Society of Motor Manufacturers and Traders (SMMT) showed second-hand sales were down 13.5pc over the same period.

The slump is leading to lower prices, with industry bosses saying buyers stood to benefit from ‘great deals’ but it could be disastrous for car finance firms.

The Bank of England has warned a 30pc fall in secondhand prices could cost banks £1.7bn. This is because drivers with personal contract purchase (PCP) deals would hand the vehicle back when the three years are up rather than pay the fee to buy the car outright.

Alex Brazier, who is the Bank’s director for financial stability, said: ‘If used car prices were to fall, and PCP purchasers opt to give back their cars, the supply of used cars could increase substantially, pushing prices down further.’

The FlA insisted sales were ‘broadly stable’ and dismissed concerns about a debt bubble. And SMMT chief Mike Hawes said: ‘This could offer motorists some great deals. However, given the softening we’ve seen in registrations of new cars, it is vital that Government secures the conditions that will maintain consumer and business confidence.’

lookers, the car dealer, warned: ‘ We view the second half of the year with some caution.’ And Mike O’Connor, chief executive of StepChange Debt Charity, said: ‘‘Both dealers and lenders need to ensure lending is responsible and robust affordability checks are in place.’

But Adrian Dally, FlA head of motor finance, claimed: ‘ The official assessment by the Bank of England found the actual risk to the system from car finance deals was negligible.’