How much truth is there in this?
Discussion
It’s hard to know but I think in general people don’t really care about cars enough for this to be a major issue. A car for 99% of people is A to B so don’t think there is anywhere near the amount of people who are willing to walk the tight rope on affordability the way they did with houses.
I think it’s more an issue for manufacturers as people will just hand the cars back and get a cheap run arounds or downsize or go a less prestigious badge. Hence why I don’t think they want to increase supply as Covid scared them off.
I think it’s more an issue for manufacturers as people will just hand the cars back and get a cheap run arounds or downsize or go a less prestigious badge. Hence why I don’t think they want to increase supply as Covid scared them off.
Fusion777 said:
Like a lot of things, it’s ok until it’s not. Can’t see there being a major risk while unemployment and interest rates are low, but there might be an issue if/when they rise.
I’d be interested to know what affordability checks are made with these products.
Knowing what I know froma friend who works at a main dealer in dales for one of the main German brands not a lot, as long as purchssers can pass a basic credit check its good to go. I’d be interested to know what affordability checks are made with these products.
There is a risk and its probably getting bigger as cars are becoming more expensive, some people just cannot say no and would not want to drop back down to a lower spec / model and may be inclined to pay more just to keep the same kind of vehicle on the drive. This pushes people into financial problems as we know some are useless at budgeting and are likely signing up to deals as we speak based on current income and outgoings, without any consideration for what is coming down the tracks come October, and what will people do to get through these higher costs.... Borrow more, be it loans, credit cards it all means extra liability and a extra debt that needs to be serviced....it it really hit the fan then for many the car would go first and so begins the defaults.
I was meant to post this up with the question!
https://www.youtube.com/watch?v=PpvP6R4gT4A
Sounds very familiar, 2008 all over again
https://www.youtube.com/watch?v=PpvP6R4gT4A
Sounds very familiar, 2008 all over again
Edited by Mumsn3t on Tuesday 26th July 11:35
Theoldguard said:
There is a risk and its probably getting bigger as cars are becoming more expensive, some people just cannot say no and would not want to drop back down to a lower spec / model and may be inclined to pay more just to keep the same kind of vehicle on the drive. This pushes people into financial problems as we know some are useless at budgeting and are likely signing up to deals as we speak based on current income and outgoings, without any consideration for what is coming down the tracks come October, and what will people do to get through these higher costs.... Borrow more, be it loans, credit cards it all means extra liability and a extra debt that needs to be serviced....it it really hit the fan then for many the car would go first and so begins the defaults.
In other words, plenty of amazing repossession deals in the post next year for the rest of us who have our head screwed on, can look ahead / budget 
Edible Roadkill said:
Theoldguard said:
There is a risk and its probably getting bigger as cars are becoming more expensive, some people just cannot say no and would not want to drop back down to a lower spec / model and may be inclined to pay more just to keep the same kind of vehicle on the drive. This pushes people into financial problems as we know some are useless at budgeting and are likely signing up to deals as we speak based on current income and outgoings, without any consideration for what is coming down the tracks come October, and what will people do to get through these higher costs.... Borrow more, be it loans, credit cards it all means extra liability and a extra debt that needs to be serviced....it it really hit the fan then for many the car would go first and so begins the defaults.
In other words, plenty of amazing repossession deals in the post next year for the rest of us who have our head screwed on, can look ahead / budget Subprime refers to a category of borrowers or loans typically with higher risk of default and therefore higher interest rates to provide greater protection to the lender.
PCP is offered to subprime, and prime borrowers.
But there is a lot less risk then the crash in 2008.
If a borrower defaults on a PCP car, it's easier to reposes it and put it back on the market.
PCP is offered to subprime, and prime borrowers.
But there is a lot less risk then the crash in 2008.
If a borrower defaults on a PCP car, it's easier to reposes it and put it back on the market.
Most of the PCP loans were bundled together and resold as investment securities. Years ago, just post brexit i went and tracked down the rates that the resold volkswagen bank bonds were trading at. It wasn't anything alarming, but i suspect if you looked into i now the interest rates and ratings may be changing. Not sure who is left holding the securities though...... Probably pension funds.
Teaspoonasaurous said:
Most of the PCP loans were bundled together and resold as investment securities. Years ago, just post brexit i went and tracked down the rates that the resold volkswagen bank bonds were trading at. It wasn't anything alarming, but i suspect if you looked into i now the interest rates and ratings may be changing. Not sure who is left holding the securities though...... Probably pension funds.
All sounds very familiar. I dug out my old research:
The largest lender is Volkswagen Bank. They have been securitising the loans through bonds issued on the Luxembourg Stock Market through an spv called Driver UK Master S.A.
https://www.bourse.lu/issuer/documents/information...
The bonds are rated as triple AAA
https://www.moodys.com/research/Moodys-has-assigne...
http://uk.reuters.com/article/fitch-rates-driver-u...
So far there is nothing too alarming but dealerships are encouraged to meet sales targets and as such they have been pre-registering cars and then reselling them, often on PCP contracts. The BBC estimates that 20% of cars sold in the UK are now sold by dealerships to themselves.
http://www.bbc.co.uk/news/business-37795068
Meanwhile four days ago Volkswagen reorganised its finance operations so that its securitisation arm will no longer be under the supervision of the ECB.
http://www.volkswagenag.com/content/vwcorp/info_ce...
Volkswagen Financial Services AG who issue the bonds will not be subject to scrutiny.
I understand the argument that cars are more fluid and easily resold then houses. However in the unique case of the UK that is not quite true as the cars are built to drive on the left hand side of the road. They cannot simply be shipped to another market and resold.
If the recession that the Bank of England and most commentators are predicting occurs due either to the fall of the value of the pound or as a result of Brexit, people are not going to be refinancing cars every two years. They will simply buy a second hand car and drive it for longer or they will go from a two car home to a single car homes.
The largest lender is Volkswagen Bank. They have been securitising the loans through bonds issued on the Luxembourg Stock Market through an spv called Driver UK Master S.A.
https://www.bourse.lu/issuer/documents/information...
The bonds are rated as triple AAA
https://www.moodys.com/research/Moodys-has-assigne...
http://uk.reuters.com/article/fitch-rates-driver-u...
So far there is nothing too alarming but dealerships are encouraged to meet sales targets and as such they have been pre-registering cars and then reselling them, often on PCP contracts. The BBC estimates that 20% of cars sold in the UK are now sold by dealerships to themselves.
http://www.bbc.co.uk/news/business-37795068
Meanwhile four days ago Volkswagen reorganised its finance operations so that its securitisation arm will no longer be under the supervision of the ECB.
http://www.volkswagenag.com/content/vwcorp/info_ce...
Volkswagen Financial Services AG who issue the bonds will not be subject to scrutiny.
I understand the argument that cars are more fluid and easily resold then houses. However in the unique case of the UK that is not quite true as the cars are built to drive on the left hand side of the road. They cannot simply be shipped to another market and resold.
If the recession that the Bank of England and most commentators are predicting occurs due either to the fall of the value of the pound or as a result of Brexit, people are not going to be refinancing cars every two years. They will simply buy a second hand car and drive it for longer or they will go from a two car home to a single car homes.
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