Sunday 23 October 2016

Why buyers need to pay heed to alert on 'finance bubble'

Warning as sales soar

Published 06/04/2016 | 02:30

Be aware that attractive PCP deals may lead to a lower value for your car in the future.
Be aware that attractive PCP deals may lead to a lower value for your car in the future.

No one wants to dampen the positive mood in the motor industry - or the economy generally - but a word of caution after the latest new-car registration figures appears timely.

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We should pay a little heed to warnings about some motorists facing a potential 'finance bubble'.

The alert is raised by Michael Rochford, managing director of car-history company

Mr Rochford told 'Independent Motors' yesterday that the 'bubble' could burst when the future market value of cars now being sold as new is lower than expected due to a 'glut' of them coming back onto the market at the same time.

Is he right? Some in the industry would disagree while others, privately, are becoming concerned at how quickly Personal Contract Plans (PCPs) are driving sales.

Many would prefer to see a more measured increase in the numbers being sold rather than the surge we've witnessed over the past couple of years (off a dangerously low level, granted). They claim that would allow for better management of secondhand cars coming on stream and avert a possible value-diminishing glut.

As we know there is a minimum guaranteed value for a car agreed as part of a PCP deal. But it is usually pitched conservatively so that you can benefit from a bit more equity than the bare minimum. That can be a boost towards your next deposit. However, if you only get the minimum, the maths could change for you. Or if, in a falling-value 'used' market the minimum agreed value of your next car drops accordingly, you could feel it in your pocket.

Mr Rochford says PCPs are adding "rocket fuel" to the new-car market fire by making it "ultra-affordable" to get one.

But, he warns: "The consequence for the consumer is that their next PCP may not be as affordable due to reduced residual values."

Basically what he is saying is: be aware that this can happen and try to make sure you can cope with, or plan for, such an eventuality.

Hopefully it will not come to that and that demand for good used cars will stay reasonably firm as more two-car families update their second motor to a three-or-four-year old.

Indo Motoring

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