The British car market is coming under increasing pressure as consumers turn away from buying new models after a squeeze on earnings, favouring secondhand cars instead.
Figures show the number of used cars bought using finance increased by 7% in June compared with the same month a year ago, according to the Finance and Leasing Association, which represents about 86% of borrowing against vehicles in the UK.
There was an 8% drop in lending extended for new vehicles, in a move that could alleviate concerns over a credit bubble in motor finance.
Booming car sales helped by financing deals have troubled the Bank of England, which sounded the alarm in July over consumers racking up debt they may find difficult to pay back in future.
Dealership car finance, through loans offered to car buyers at the point of sale, has been growing rapidly in recent years and in total was worth £58bn at the end of March, according to Threadneedle Street.
“While the new car market is going to continue to stutter for the rest of the year, we could still see the used car market surging as people switch from new to secondhand motors,” said Alex Buttle, of car buying comparison website Motorway.co.uk.
There were 1m new cars sold to consumers buying with the help of finance in the 12 months to June, compared with 1.2m used vehicles, according to the FLA data.
The UK new car market declined 9.3% in July, according to figures published this month by the the Society of Motor Manufacturers and Traders, the fourth consecutive monthly fall. The SMMT said on Wednesday almost 4m used cars were sold in the first half of this year, down 5.1% on a year ago.
Consumers got a glimpse of some respite this week from surging inflation after the vote to leave the European Union, as the consumer price index remained static at 2.6%, while pay growth showed signs of edging up after the lowest level of unemployment since the mid-1970s potentially handed workers more bargaining power.
Lookers, the UK’s biggest car dealership, said on Wednesday it viewed the second half of the year with caution and that new car sales would probably fall by 2.6% this year. It said the used car market represented a significant opportunity and that it had seen a 23% increase in leads generated by its website in the first half of 2017.
There has been plenty of pressure on car sales in recent months, with consumers facing political uncertainty from the Brexit vote and Theresa May’s snap general election, while the government also put forward plans to ban the sale of petrol and diesel cars from 2040 to encourage a shift to electric vehicles.
Falling used car prices would trouble the Bank of England, as banks lending to customers buying new cars on hire purchase plans could be left with vehicles worth less than they had previously envisaged at the end of a deal.
David Bailey, professor of industry at Aston University, said greater levels of interest in used cars as consumers tighten their belts could help protect the value of vehicles.
“If we see the new car market cool, the secondhand market will probably do better, and in a sense that might support residual values of the cars coming onto the secondhand market,” he said.
