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Old 30-07-2017   #16
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Re: pcp finance - are the wheels about to come off?

Quote Originally Posted by AndyRKett View Post
What we have here is a system that has been operating without issues for the last 20 years or so with no problems and has already gone through one serious financial crash without any significant issues,
You are quite correct, except that PCP was a much smaller percentage of car finance at the time of the last crash, and has been increasing dramatically since then.

Quote Originally Posted by AndyRKett View Post
versus the doom and gloom media who like to run a story to try and keep people reading papers.
Again, true, except I, personally, haven't read any of them.
My sources were from financial data instructions related to the calculation of Bank Credit Exposure and the regulatory procedures that financial institutions are required to undertake, and, for example, the Bank Of England's Credit Conditions Review (2016 Q3), which I believe is available to the public. It's only really a summary, but it's quite informative. The backing figures for it would be restricted.

Quote Originally Posted by AndyRKett View Post
If you bothered to read above I had not replied to anything you've said and truth be told I've not read anything you've said (before me quoting you now), what I was replying to was the original post which linked to a daily mail article.
I did bother to read above, and having seen the link, I had assumed that the poster had already read the article (which I hadn't, and probably never will), but as it was based on press releases from the BOE and also their quarterly credit analyses I didn't see much point when I could read the source material. As I said, I fully understand the mathematical constructs, but I was having a problem with the posted interpretation of them.

The points I made related to
a) the significant increase in PCP finance since the last time the financial markets were stressed, (PCP about 30% of dealership finance in 2000, about 75% now)
b) that the PCP type of finance appears to be less controlled than traditional finance. Therefore, it seems likely that more unsuitable customers will be approved for finance they can barely afford
c) the financial product itself is sensitive to the residual price.
d) personal debt profile
All of these are factors which should perhaps cause concern.

At least according to the Bank Of England. In their own words (and figures, and graphs). They have apparently been considering bringing PCP diligence up to the same level as normal household finance. I expect some will be surprised/shocked that it isn't already.
Perhaps that will rein things in a bit and avoid problems with defaults in future should there be an interest rate increase.

(They do have some pretty good mathematicians working there. Theoretically they also have some good economists too, but I guess we'll see about that)
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Old 30-07-2017   #17
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Re: pcp finance - are the wheels about to come off?

Quote Originally Posted by AndyRKett View Post
try reading some of the articles these are based off
“Lenders have been the lucky beneficiaries of the benign way the economy has evolved. In expanding the supply of credit, they may be placing undue weight on the recent performance of credit cards and loans in benign conditions.”

In car finance, Personal Contract Purchase (PCP) plans now finance almost four in five new car purchases, having accounted for one in five in 2006. Arrears rates are lower than on other forms of consumer credit, and unlike credit cards or personal loans, the lenders are predominantly the finance arms of car companies. Losses to those companies – however painful for them – are much less significant for the wider economy than losses at banks.

“Nevertheless, the banks that are involved, as well as the shareholders of car companies, will want to think very carefully about the risks” Alex says. He explains how, even if a borrower makes all the monthly payments on a PCP contract, the lender can still lose money if used car prices fall. “The advent of PCP means – as the small print always says – the past may not be a good guide to the future.”

...from a speech given at the University of Liverpool’s Institute for Risk and Uncertainty 6 days ago by Alex Brazier, the Bank of England's Executive Director, Financial Stability Strategy & Risk, and a member of the Financial Policy Committee.

Quote Originally Posted by AndyRKett View Post
What we have here is a system that has been operating without issues for the last 20 years or so with no problems.
and to quote Alex Brazier again, "the past may not be a good guide to the future".

I've no idea whether what's currently circulating in the press and elsewhere is overhyped drama, or the first signs of changes which will affect anyone buying a new car on finance. That's why I started this thread, to get some input from the real world about what's actually happening out there. It's why posts like Simon's are so valuable, because that's real world input about something on the ground that's different this year from what was happening in the past.

Personally I don't think car pcp deals are going to trigger an economic crash in the UK, but I do think folks buying cars this way are going to notice some changes, not all of which will be for the better.

For example, a lot has been said recently about how buying a car on a pcp can make it harder to get other forms of credit (esp. mortgages & new credit cards). Has anyone here experienced this?
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Last edited by jrkitching; 30-07-2017 at 23:17.
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Old 30-07-2017   #18
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Re: pcp finance - are the wheels about to come off?

Quote Originally Posted by jrkitching View Post

Personally I don't think car pcp deals are going to trigger an economic crash in the UK,

Which is basically what I've been saying.........
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Old 12-10-2017   #19
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Re: pcp finance - are the wheels about to come off?

Rich pickings in the used car sector though if your a cash buyer.
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Old 12-10-2017   #20
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Re: pcp finance - are the wheels about to come off?

A very interesting thread and it seems to me that PCP's have an influence with regard to another thread on this forum about the "design life" of cars.
Why bother to design a car to last well, perform reliably and look undated when your ideal customer is, from day one of ownership, already being set up to sign on the dotted line for the next model at the end of the PCP agreement?
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Old 12-10-2017   #21
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Re: pcp finance - are the wheels about to come off?

There could be an interesting chicken and egg discussion, are modern cars built worse because of PCP or is PCP popular because an older modern car has the ability to produce huge bills?
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Old 13-10-2017   #22
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Re: pcp finance - are the wheels about to come off?

I didn't say it, but I was certainly thinking along those lines when I started the other thread.
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