Relaxation of coronavirus restrictions and rising used car prices has triggered a major spike in car finance applications over the past 12 months. According to the latest figures from the Finance and Leasing Association (FLA), the total size of the UK’s consumer car finance market grew by more than 40% in January compared to the same month a year earlier.
This would suggest that the sector’s performance for January was just 1% below its pre-pandemic norms, indicating a successful year to come for vehicle finance specialists.
According to the FLA’s data, approximately 54,000 new cars were purchased by private buyers on finance in January. This represents an increase of around 47% compared to January 2021.
But while this may be the biggest annual increase on record, it is important to remember that the vast majority of UK car dealerships were not operational at the beginning of last year. Due to lockdown restrictions most dealerships had to close their doors entirely, or to conduct limited affairs remotely.
Even so, the total combined value of the new car finance market skyrocketed by more than 50% in the 12 months leading up to January 2022, during which car finance companies lent a combined total of around £1.3 billion for the purchase of new private cars.
Used Car Finance Sales Also Soar
Meanwhile, the same 12 months added huge value to the UK’s used car finance market, which came out at around £1.9 billion in the year running up to January this year – a huge 66% increase compared to a year earlier.
In total, car finance was used by just over 122,000 private used car buyers in the UK.
Along with pent up demand being released on the market as coronavirus restrictions are relaxed, the FLA cites global chip shortage issues as a key driver of the sector’s strong performance. As it becomes increasingly difficult to produce and import new cars, average used car prices continue to climb.
A Strong Year Ahead
Speaking on behalf of the FLA, chief economist and director of research, Geraldine Kilkelly, suggested that despite a slight dip in performance in January, the market would continue to experience significant growth throughout the year.
“The strong performance of the consumer car finance market in January in part reflects the closure of showrooms during the third UK lockdown last year and the continued record-high growth in used car prices,” she said.
“Annual new business by value reported by the consumer car finance market was only one percent lower in January than its pre-pandemic level,”
“The economic outlook in the UK and globally has weakened following the invasion of Ukraine, with consumer price inflation in the UK expected to peak at more than 8% in the first half of this year. Nevertheless, we continue to expect further growth in the market during 2022 as demand for finance for electric vehicles and used cars remains strong.”