Expert Blog

Britain’s new car sales: creditworthy or a credit risk?

Welcome to Booming Britain. The economy is growing, consumer confidence is returning, and we’re all spending, spending, spending as though it’s the last shopping weekend before Christmas. Did you know? Sales of new cars hit a 16-year high in March. Almost half-a-million vehicles were delivered to their expectant purchasers.

This might sound like a wonderful development, particularly for the country’s resurgent motor industry, but… there’s a but. A lot of this buying is being paid for by debt.

The household debt numbers are some of the most important, yet insufficiently discussed, in our economy. This is the money that we, as individuals, owe via mortgages and credits cards and loans and overdrafts. And it just so happens to be at its highest level in history. Last year, household debt hit about £1.7 trillion. The Office for Budget Responsibility forecasts that it will reach £2.5 trillion in four years’ time.

It’s the flipside of our economic recovery. Back when the country was in recession, people took firmer control of their finances, and household debt actually declined a bit. But now that the good times are back, so is our old instinct to go shopping and put it on plastic. With interest rates so low, why wouldn’t we?

This is certainly what’s been happening at car dealerships. Loans for new cars may not account for all of our household debt, but they are a significant – and growing – part of it. According to the Finance & Leasing Association, £1.8 billion of financing was made available for car sales in January, which is 5 per cent higher than the same month a year ago.

Of course, this needn’t be a bad thing in itself. People could be buying cars to help them in their jobs, which earns them more money, which means they can pay back the original loans comfortably, and so on.

But it does at least raise questions about the quality of Britain’s recovery. Will people be able to keep up with their repayments once interest rates rise? Is it possible that they’ve already taken on too much debt, on top of the car loans?

There are yet no clear answers to these questions, but there are some troubling noises from across the Atlantic. Already, American commentators are talking about “subprime autos” as the next crisis waiting to happen. Lenders are still lending to those who may not be able to afford it.

Which brings us to the biggest, most terrible question of all: have we actually learnt anything from the previous crash? Or is Booming Britain heading for another bust? The politicians aren’t saying much about it during this General Election campaign, so you’ll have to judge for yourselves.

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