May has seen a new benchmark set for pricing
in retail motor finance, with dealers across the UK reporting
consumer rates up in the region of 0.5% APR.
While some retailers report that Carlyle
Finance was the first to raise prices, the move became more
universal when market leader Black Horse Motor Finance increased
rates by an average of 0.25 flat (0.45% APR) on 9 May.
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Many of the non-captive lenders are now
understood to have followed suit, although not all have raised
prices universally – Santander Consumer Finance, for example, is
thought to have assessed pricing on a dealer-by-dealer
basis.
While base rate looks set to remain stable at
0.5 percent in the short term, money markets saw prices climb
during the year’s second quarter in anticipation of rate rises
throughout the year.
Peter Cottle, of motor finance consultancy
FinanceTorque, commented: “A number of motor finance companies are
announcing rate increases at the moment, which on the face of it
may look strange when comparing to Libor
and other financial monitors. However in true terms their cost of
funds are increasing in line with longer range forecasts, and
availability of capital can come at a cost well above published
market rates.”
Paul Harrison, head of motor finance at the
Finance and Leasing Association, urged the need for lenders to
weigh up preservation of margins against the maintenance of
competitive pricing in an increasingly active marketplace.
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By GlobalData“Dealer finance is an affordable and popular
way to pay for a car, as highlighted in our latest statistics which
show that 54.2% of private buyers opted for forecourt finance.
While sensible margins for lenders are important to sustainable
business, motor financiers are anticipating the re-emergence of
direct lenders. Greater competition will change markets dynamics
but it will be important to promote the benefits secured motor
lending holds over loans. The price of finance is influenced
by many factors including wholesale funding, although I understand
the cost of borrowing for lenders has stabilised in recent
months.”
Some commentators suspect that a further round
of rate increases may hit the market when interest rates do move
later in the year. A senior manager at one independent lender
commented “I think these changes may have a lot to do with the
margin requirements of the lenders who made them. The acid test for
the industry as a whole will come when we see significant changes
to the money markets.”
May’s edition of Motor Finance will
contain a full analysis of current changes in pricing, as well as
editorial by Black Horse managing director Chris Sutton on the
connection between the cost of funding and finance rates at the
point of sale.
