BoE investigates 'terrifying' rise in borrowing to fund new car purchases

[Habeas Domus]

I see this as more of a symptom than anything, if you have spent every last penny on a house theres nothing left to buy a car with.

Now if interest rates rise over the next few years, these ultra cheap PCP deals will start to disappear, your average punter then has a rising mortgage cost, no money in the bank, a car deal they can't afford to renew but they still need transport to get to work.

[Blod]

15 hours ago, Habeas Domus said:

I see this as more of a symptom than anything, if you have spent every last penny on a house theres nothing left to buy a car with.

Now if interest rates rise over the next few years, these ultra cheap PCP deals will start to disappear, your average punter then has a rising mortgage cost, no money in the bank, a car deal they can't afford to renew but they still need transport to get to work.

Exactly. The BOE have allowed the economy to become dependant on what was 'emergency' low interest rates. People are seeing rates lift in the US and carping themselves, hence the 'slowdown' in the housing market. After the next FED rise the effect on the UK will be massive as people begin to realise that our rates could lift, though they won't. Naturally it'll be blamed on BREXIT. Carney has nothing left to paper over the fact that he should have lifted rates three or four years ago and didn't. He knew they were playing with peoples sentiments by creating a borrowed feel good factor. If he just nudged them up a little he could have reduced whats come by dropping rates back a little. That way the current loss of confidence could have been avoided. Buckle up and get the popcorn ready.

[spyguy]

50 minutes ago, Blod said:

Exactly. The BOE have allowed the economy to become dependant on what was 'emergency' low interest rates. People are seeing rates lift in the US and carping themselves, hence the 'slowdown' in the housing market. After the next FED rise the effect on the UK will be massive as people begin to realise that our rates could lift, though they won't. Naturally it'll be blamed on BREXIT. Carney has nothing left to paper over the fact that he should have lifted rates three or four years ago and didn't. He knew they were playing with peoples sentiments by creating a borrowed feel good factor. If he just nudged them up a little he could have reduced whats come by dropping rates back a little. That way the current loss of confidence could have been avoided. Buckle up and get the popcorn ready.

Less that he should have raised rates, more that he should have been shutting down debt levels.

They should banned IO mortgages ASAP and pushed existing ones onto repayment.

The last 10 years have been pure can kicking and, bar MMR for new borrowers, who are not the problem, none of the legacy of the loon Brown's credit bubble 2000-2008 have been addressed.

[StainlessSteelCat]

People have to demonstrate their status somehow. Houses are out for young people, so cars it is - and hence financialisation of that.  Once that's been blown up, it'll likely be bicycles next. 

[maverick73]

32 minutes ago, StainlessSteelCat said:

People have to demonstrate their status somehow. Houses are out for young people, so cars it is - and hence financialisation of that.  Once that's been blown up, it'll likely be bicycles next. 

Soon, they will announce special toilet roll tax. Each time they wipe your...

[Fully Detached]

So if/when this all blows up, what's the most likely scenario - that credit bought cars are repossessed en masse and sold off at fire sale prices, or that the credit companies simply tell the borrowers to keep on paying whatever they can? Surely it's the latter, forbearance seems to be the only way to stop the whole system from collapsing these days?

On a practical point, you take away the car, you take away the ability for a lot of people to earn enough to pay you anything - you've got dick all chance of seeing your money back.

[Venger]

I know some HPCers prefer to focus on 'the plight' of those who have the best in life, and worry about about a wider circumstance change (that never seems to come... as one HPIer reminds us... crunch followed by an 8 year super-bubble, and counting for HPI+++ to come). 

In 2014 I bought our car from the showroom (ex-demonstrator) for cash.  Plan to run it for 10 years.  Could easily have bought a really flash brand-new higher end model for cash, but went for something not that far up from base level.   Even then I compare my more fortunate situation to others, including those who take public transport and deliberately go without a car... for they can't afford one, or saving all toward deposit for a future house purchase.

Quote

When consumers and financial institutions enter debt contracts for consumer purchases such as cars, no production effort is tied to the loan. Interest payments on such loans stress some other source of income.  Such lending is almost always counter-productive; it adds costs to the economy, not value.

If someone needs a cheap car to get to work, then a loan to buy it adds value to the economy.

If someone wants a new SUV to consume, then a loan to buy it does not add value to the economy.

Advocates claim that such loans "stimulate production," but they ignore the cost of the required debt service, which burdens production.

They also ignore the subtle deterioration in the quality of spending choices due to the shift of buying power from people who have demonstrated a superior ability to invest or produce (creditors) to those who have demonstrated primarily a superior ability to consume (debtors).

If there is a change to come, then make way for those who are on the saver side of things.     

And in that I include those on renter-saver side I know of who hardly treat themselves at all, as they take public transport options (even though a car would be more convenient for them), walk/cycle to the train station.

The living-breakdown ("the future victims") is a joke for adults who can make their own decisions, who none of you know the individual circumstances of, for something that has not happened, may not happen...  and in it all, others who are not spanking the debt to have brand new expensive cars on finance, which those who do have are enjoying the luxury of in the moment right now - vs - the poorer 'losers' running older cars, and the no-car walkers losers on public transport.

If there is a recession/correction, people with the flash motors on finance will have to adjust.   Other people get opportunity.   It's not a life where you just lay claim to whatever you want and sell on responsibility to society, even though we're in this mess because that has been the shift of what those in power/VI want to do.  It may end.

It's a similar story for housing.  Other people exist.

Edited April 17, 2017 by Venger

[durhamborn]

On 4/14/2017 at 11:03 PM, Tiger131 said:

On my walk home form work I am passed by countless young Princesses in new or nearly new black and white Audis that I couldn't even afford to buy now, never mind 20 years ago when I was their age.

I just parked my £800 van in Lidl.In my row was a new BMW,Audi,Civic,Range Rover,Mini and two other older cars.Loads of two car families on my estate have gone from 5 year old cars to two new cars,and not cheap ones.Car loans could be one of the triggers for the next deflationary collapse im expecting.The people over the road who you never see in daylight over the winter months (out at 7am,back 6.30pm) spend every 5 weeks on their cars what my van cost altogether.Still they can look down their nose at me at least,seeing as im so poor to not be able to afford a nice car.

[maverick73]

2 hours ago, Fully Detached said:

So if/when this all blows up, what's the most likely scenario - that credit bought cars are repossessed en masse and sold off at fire sale prices, or that the credit companies simply tell the borrowers to keep on paying whatever they can? Surely it's the latter, forbearance seems to be the only way to stop the whole system from collapsing these days?

On a practical point, you take away the car, you take away the ability for a lot of people to earn enough to pay you anything - you've got dick all chance of seeing your money back.

Soon they will introduce diesel car pollution tax. So the fire sale will occur ok foreign lands, as the UK will become a ghost town.. 

[durhamborn]

35 minutes ago, Venger said:

I know some HPCers prefer to focus on 'the plight' of those who have the best in life, and worry about about a wider circumstance change (that never seems to come... as one HPIer reminds us... crunch followed by an 8 year super-bubble, and counting for HPI+++ to come). 

In 2014 I bought our car from the showroom (ex-demonstrator) for cash.  Plan to run it for 10 years.  Could easily have bought a really flash brand-new higher end model for cash, but went for something not that far up from base level.   Even then I compare my more fortunate situation to others, including those who take public transport and deliberately go without a car... for they can't afford one, or saving all toward deposit for a future house purchase.

If there is a change to come, then make way for those who are on the saver side of things.     

And in that I include those on renter-saver side I know of who hardly treat themselves at all, as they take public transport options (even though a car would be more convenient for them), walk/cycle to the train station.

The living-breakdown ("the future victims") is a joke for adults who can make their own decisions, who none of you know the individual circumstances of, for something that has not happened, may not happen...  and in it all, others who are not spanking the debt to have brand new expensive cars on finance, which those who do have are enjoying the luxury of in the moment right now - vs - the poorer 'losers' running older cars, and the no-car walkers losers on public transport.

If there is a recession/correction, people with the flash motors on finance will have to adjust.   Other people get opportunity.   It's not a life where you just lay claim to whatever you want and sell on responsibility to society, even though we're in this mess because that has been the shift of what those in power/VI want to do.  It may end.

It's a similar story for housing.  Other people exist.

They will have to more than adjust i expect.If the deflationary collapse im expecting hits then finance will be very hard to get.We will see an inflation cycle after that,but it wont favour people who need to rent cars.It will hammer them.The amount of growth/demand pulled forward since 2008/9 is incredible (here and everywhere else) to kick the can,but that will just make the deflationary hit huge.In the US car loans have rolled over,and the consumer is tapped out (mall traffic is off a cliff).We are right behind.Its coming,and the general public are going to be given a lesson in cycles they can watch and learn.

[winkie]

3 hours ago, StainlessSteelCat said:

People have to demonstrate their status somehow. Houses are out for young people, so cars it is - and hence financialisation of that.  Once that's been blown up, it'll likely be bicycles next. 

 

[Dorkins]

3 hours ago, Fully Detached said:

On a practical point, you take away the car, you take away the ability for a lot of people to earn enough to pay you anything - you've got dick all chance of seeing your money back.

The expensive German motor gets taken away, the person buys a cheap older car for £1k. Still able to get to work.

[Ah-so]

1 hour ago, maverick73 said:

Soon they will introduce diesel car pollution tax. So the fire sale will occur ok foreign lands, as the UK will become a ghost town.. 

Why don't we just tax diesel more? If it is ruinously expensive to drive  them, regular drivers will switch. Those who rarely drive may be able to absorb this cost - a diesel car that is parked creates little pollution compared to a petrol car regularly driven. 

[Blod]

1 hour ago, Ah-so said:

Why don't we just tax diesel more? If it is ruinously expensive to drive  them, regular drivers will switch. Those who rarely drive may be able to absorb this cost - a diesel car that is parked creates little pollution compared to a petrol car regularly driven. 

We all know that once tax gets upped on diesel they can then justify taxing petrol more as well, its the pollution innit.

[Habeas Domus]

4 hours ago, Ah-so said:

Why don't we just tax diesel more? If it is ruinously expensive to drive  them, regular drivers will switch. Those who rarely drive may be able to absorb this cost - a diesel car that is parked creates little pollution compared to a petrol car regularly driven. 

This is an eminently sensible idea, therefore it will never happen.

Expect some complicated scheme which involves filling in tax forms instead.

[spyguy]

5 hours ago, Ah-so said:

Why don't we just tax diesel more? If it is ruinously expensive to drive  them, regular drivers will switch. Those who rarely drive may be able to absorb this cost - a diesel car that is parked creates little pollution compared to a petrol car regularly driven. 

Youd think that ... but going by the number of 4l 4x4 on the road id reckon a lot people have very high pain threshholds.

[Little Frank]

On 4/15/2017 at 6:20 PM, reddog said:

In some ways you could say it's not that dangerous, because if you don't have enough money you could just not renew you lease and catch the bus instead.

 

But on the other hand so much economic activity is being misdirected into this sort of rubbish, with news programmes proudly proclaiming how high car sales are relative to other European countries.  If / when this comes to an end, it is seriously going to hurt the economy.

Could you please explain what you mean by 'so much economic activity is being misdirected into this sort of rubbish'? and explain in what way if/when this comes to an end 'it is seriously going to hurt the economy'? 

Thanks

[Little Frank]

On 4/16/2017 at 3:06 PM, Habeas Domus said:

I see this as more of a symptom than anything, if you have spent every last penny on a house theres nothing left to buy a car with.

Now if interest rates rise over the next few years, these ultra cheap PCP deals will start to disappear, your average punter then has a rising mortgage cost, no money in the bank, a car deal they can't afford to renew but they still need transport to get to work.

In what sense are they ultra cheap?

Most PCP deals seem to be around the 5-6% mark. So about 2-3 x mortgages rates. PCPs on 2nd hand cars seem to be around 2 x those for new cars. So generally expensive (not cheap) finance for a real asset (albeit one which depreciates fairly rapidly). 

[Sour Mash]

On 15/04/2017 at 10:43 AM, longtomsilver said:

We have this discussion every year and yet the market never manages to depress prices. The very best used cars coming off lease get a second or third life within the dealership network, less outlay to the customer but higher margins (apr is nearly always less favourable) which is where I believe the manufacturers begin to harvest for a profit. On the last two leases my whole outlay (rentals) only covered the VAT element. (£9,000 and £7,000 respectively) on two prestige German marque's.

I'm seeing an increase in the number of new (status) vehicles driving around with a bow on the grill of all things. 3 this week alone, is anyone else seeing this too? ?

Often, the 2 year PCH leases will be put back out on a 3 year PCP. 

PCP is not just for new cars now, 'nearly new' (i.e. 2 years) are now also being flogged on finance deals whereby the people who take out the deal are pretty unlikely to ever own the car as they'll give it back after 3 years and take out a new PCP.

 

[Sour Mash]

2 hours ago, Little Frank said:

In what sense are they ultra cheap?

Most PCP deals seem to be around the 5-6% mark. So about 2-3 x mortgages rates. PCPs on 2nd hand cars seem to be around 2 x those for new cars. So generally expensive (not cheap) finance for a real asset (albeit one which depreciates fairly rapidly). 

They're cheap in that the monthlies look pretty 'affordable' for a high spec, new car.

Basically, you are funding the depreciation with interest and fees on top.

If interest rates weren't so stupidly low, PCP wouldn't be nearly such a nice looking proposition.

 

[nnails]

Just out of interest.  Do the pcp include insurance if you loss your job ?

[bubbleturbo]

The BOE starting to "investigate" is a sure sign that excrement has already started to come into contact with the fan blades at an alarming rate.

Edited April 17, 2017 by bubbleturbo

[Bland Unsight]

59 minutes ago, bubbleturbo said:

The BOE starting to "investigate" is a sure sign that excrement has already started to come into contact with the fan blades at an alarming rate.

This investigation follows hot on the heels of the investigation into why the people sitting near the fan are all covered in shit.

[juvenal]

13 hours ago, maverick73 said:

Soon, they will announce special toilet roll tax. Each time they wipe your...

If this comes in we could be wiped out!

[nnails]

20 hours ago, durhamborn said:

I just parked my £800 van in Lidl.In my row was a new BMW,Audi,Civic,Range Rover,Mini and two other older cars.Loads of two car families on my estate have gone from 5 year old cars to two new cars,and not cheap ones.Car loans could be one of the triggers for the next deflationary collapse im expecting.The people over the road who you never see in daylight over the winter months (out at 7am,back 6.30pm) spend every 5 weeks on their cars what my van cost altogether.Still they can look down their nose at me at least,seeing as im so poor to not be able to afford a nice car.

My work mates are like that. I tried to explain that they pay 200 quid a month after 9 months they would own my car easily. No worry about meeting payments if you lost job etc. After 3 years I would have saved 5k and they would still not own it.