According to new data released by the Finance and Leasing Association (FLA), new car finance in the UK has suffered its “biggest contraction” in new business volumes since the COVID-19 lockdown period from February 2021 to June.
New business volumes fell 12% year-on-year in the last month of the first half of 2022, with new business in the new car finance market down 21% in value (to £1.44bn) and by 28% in volume (to 56,877).
The impact of automotive supply issues appears to be reflected in an increase in the value of new used car finance business written in the same month, as some consumers changed their purchasing decisions to avoid long time limit.
New used car finance business grew 10% in value (to £2.05bn) and fell just 3% in volume (to 132,305 units) over the same period .
Overall, this means the value of new business fell 6% (to £3.49bn) year-on-year in June, with volumes down 12% to 189,182.
Geraldine Kilkelly, Director of Research and Chief Economist of the FLA, said: “In June, the new car finance market reported its largest contraction in new business volumes since February 2021, with vehicle shortages continuing to disrupt market recovery.
“In contrast, the corporate used car finance market saw record monthly new business volumes in June, and consumer used car finance new business volumes were only slightly lower. to those of June 2021.”
Growth expectations
Despite the economic headwinds the UK is currently facing, Kilkelly said finance providers still expect to generate growth over the next 12 months.
She said: “Consumer spending is expected to weaken in the second half of 2022 as incomes are squeezed by rising inflation, interest rates and taxes.
“Our Q3 2022 Industry Outlook Survey suggests that 56% of auto finance respondents expect growth in new business over the next year, compared to 76% in the Q2 2022 survey. .
“As always, customers who are concerned about meeting payments should speak to their lender as soon as possible to find a resolution.”
Commenting on today’s FLA data, Michael Davidson, chief revenue officer at Freedom Finance, acknowledged that the automotive sector has been battling severe headwinds since the COVID-19 pandemic, with a shortage of semiconductor chips affecting supplying UK buyers and driving up the price of used cars.
But he added: “Car finance plays a crucial role in enabling more people to buy vehicles by spreading the cost of payments.
“The market has seen significant innovations to expand the range of products available to customers and there are now more flexible, bespoke options that will suit a customer’s individual circumstances.
“Many successful car dealerships have also implemented integrated financial partners who can meet their customers’ requests for quick and easy access to a range of different car finance options as well as other financial services, in order to so that their customers can get the best offer to source at any stage of the purchase journey.
