Car finance market warned of possible impact of base rate rise

MotoNovo Finance’s Motor CEO, Karl Werner’s, views were recently published in Motor Trader.

Posted by: Curtis Hutchinson

The consumer credit market is set to face major change following the Bank of England’s recent signal of a rise in base rates with MotoNovo Finance warning of the impact of higher interest rates and tighter credit control on the car retailing sector.

Karl Werner, Motor CEO of MotoNovo Finance said the Bank of England’s recent Financial Policy Committee (FPC) statement made it clear that lenders risk underestimating the impact of a rise in consumer defaults in an economic downturn.

“There can be little doubt that the consumer credit market is set to face major change, with an increase in interest rates now firmly on the cards and the Bank of England signalling for increased lending prudence. Following virtually a decade of upward growth for our sector, the motor finance sector needs to be prepared for what for many will be a new experience, rising interest rates and tighter credit conditions,” he said.


“Within a benign overall domestic credit environment, there is a pocket of risk in the rapid growth of consumer credit. Although the overall credit quality of consumer credit has improved significantly since the financial crisis, the FPC judges that lenders overall are placing too much weight on the recent performance of consumer lending in benign conditions as an indicator of underlying credit quality. As a result, they have been underestimating the losses they could incur in a downturn.”


“The winds of change in consumer credit have been building for a while now; it is time to re-calibrate in certain areas, notably risk management and pricing. As a business, our success and that of our dealers has come from a long-term approach and seizing ‘first mover advantage’ in areas such as innovation and technology. To secure long-term success and to support customer retention, we will not be afraid to move first to help secure the long-term future of dealer finance, no dealer benefits from choosing a lender with a model which proves unsustainable,” he said.

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MotoNovo Finance, a division of FirstRand Bank Limited (London Branch). Registered in England (Branch Reg. No: BR010027) at Austin Friars House, 2-6 Austin Friars, London, EC2N 2HD. FirstRand Bank Limited is authorised and regulated by the South African Reserve Bank. Authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. FirstRand Bank Limited (London Branch) is a branch of FirstRand Bank Limited, a public limited company registered with the Companies and Intellectual Property Commission in South Africa (Reg. No. 1929/001225/06) Head office: 4 Merchant Place, Corner Fredman Drive and Rivonia Road, Sandton 2196, South Africa