The motor finance boom has started to decline, with growth falling to a lower level of 3.1% in 2019. New car sales are tumbling, and the excess of vehicles that have started to enter the used car market will drive down prices over the next few years.

Motor finance gross lending growth contracted in 2018, while the value of new car finance is expected to go up by 2.9% and used car finance is set to grow by 3.3% in 2019 as per our analysis.

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According to figures published by the Society of Motor Manufacturers and Traders (SMMT), the slump started in 2018 and continued till mid-2019. New business volumes in the consumer car finance market fell by 4% in October 2019 compared to October 2018.

Within the overall consumer car finance figures, there was a decline in the new car finance market, wherein new business volumes were 9% lower in October 2019 compared to October 2018. Similarly, there was a 2% drop in new business volumes for the used car finance market during the same period.

Analysis conducted by SMMT suggests that Brexit will impact EU tariffs on cars and could possibly lead to an increase in imports and exports annually by £2.7bn and £1.8bn respectively. Higher tariffs could then drive up the list prices of cars imported to the UK from across the region by £1,500.

Hence, it seems that the historical boom in the new car finance segment has come to an end, and the surge in new car sales in recent years will eventually lead to a surplus in the used car market, which is likely to weigh on prices.

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Data from the Finance & Leasing Association also suggests that the used car finance market’s new business volumes are set to grow 2% year-on-year to almost 1.5m cars in 2019. This will be supported by increased consumer confidence in the economic outlook and their ability to commit to big-ticket purchases.

However, the combination of declining new car registrations and competitive pricing will dampen growth in the motor finance sector in the short term.

We will be assessing motor finance and other lines of credit in our upcoming report, UK Consumer Credit 2019: Forecasts and Future Opportunities to 2023.