UK Used Car Finance Market Insight 2020/21
This report focuses on the UK market for secured consumer finance for used cars.
– It also includes agreements for used motorcycles, vans and leisure vehicles (e.g. campervans) however cars represent over 95% of the relevant consumer market.
– Secured loans are defined as those where the ownership of the vehicle rests with the lender during the life of the agreement.
– The report excludes unsecured personal loans that some consumers may use when buying a car, which we believe is now a relatively minor form of car finance.
– It includes agreements for vehicles that might be used for business purposes by individuals but are purchased by consumers rather than the businesses they run.
– Describes the overall used vehicle market size and historical growth rates.
– Profiles 25 largest used vehicle loan providers.
– Describes the role of brokers, including firms working with vehicle dealers and those dealing direct with consumers.
– Reviews drivers of used vehicle loan growth, setting out historical trends and available forecasts.
– Provides our forecast for the market to 2021, supported by evidence from market drivers and industry interviews.
Objectives of the report
This report aims to get behind the publicly available high-level numbers on the number and value of car finance agreements arranged at POS to provide insight into the size and characteristics of the diverse range of lenders within this growing market
Key questions it answers include:
– What are the different ways in which car dealer POS finance is offered in the UK?
– What are the main types of used vehicle finance products?
– How does the process of providing used vehicle loans vary between prime, near-prime and sub-prime customers?
– Who are the main finance companies and what are their channels to market?
– What is the role of brokers in the market?
– What alternatives are there to secured loans for used vehicles?
– How could new regulation change the market?
– Taking these factors into account, how do we expect the market to grow in the future?
The used car finance market
Our definition of the market covers all consumer hire and credit products that are secured on vehicles.
As in other credit markets, used vehicle consumers are typically divided into groups based on their credit records.
There appears to be a shift in boundaries between the categories, with prime lenders having progressively tightened their lending criteria since 2019, and in particular as a consequence of the Coronavirus effects on the economy. As a result, some customers who might previously have qualified as ‘prime’ are now potentially having to borrow from lenders that are seen as ‘near-prime’
There has been a significant shift over the last ten years towards secured car finance from unsecured loans. Secured finance is provided for around 30% of dealer used car sales, a much lower penetration rate than for new cars.
Interviews with industry experts suggest that finance penetration rates vary considerably between dealers. The largest car warehouse-style dealerships may achieve penetration rates over 70%. Smaller dealers often have finance penetration rates below 10%.
Regulation of the sector has tightened considerably since the FCA took over consumer credit from the Office of Fair Trading in 2014, with a further key change to broker commissions taking effect in January 2021.
Some of the largest bank-owned lenders have reduced their participation in the used car dealer market over the past year, possibly reflecting difficulties in overseeing the conduct of smaller dealers when offering finance.
There are four channels by which secured finance may be arranged for vehicles, as shown in the diagram. Dealer finance is the largest of these, with a small but growing role for ‘secondary’ brokers who sit between dealers and finance companies.
Key market insights
The used car market has fallen significantly in 2020 with SMMT reporting September YTD sales volumes being 17.5% lower than 2019.
However, the proportion of used cars financed has continued to increase during this period.
Market concentration appears steady: the top three firms had a combined market share of over 50% in 2019, in line with recent years.
The non-prime sector is increasing at a rapid rate, having doubled in size in the past five years.
Almost two thirds of used car finance is sold by franchised dealers at point of sale, with the remainder split between independent dealers and direct channels.
We expect used car volumes to recover in 2021 and 2022, but remaining below 2019 volumes. There is further uncertainty regarding 2023 used car volumes given the inevitable reduction in supply of quality used cars exiting three-year leases..
We expect the proportion of used vehicles financed to continue to increase as a result of trends described in the report.
Who is the report intended for?
CCar loan providers
Firms providing services to car loan lenders, including software providers
Car finance brokers
Owners and investors in the industry
Advisors including consulting firms, investment banks, lawyers and accountants
Industry regulators and policymakers
What are the sources and methodology?
This report is based on
– Extensive research into published industry sources.
– In-depth analysis of the macroeconomic environment and relevant market drivers.
– Financial analysis of the accounts and other financial information of car finance market participants.
– Interviews with industry experts and particiants.
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions
Forecasts are based on our market model which incorporates the key levers which drive the market and makes explicit assumptions regarding each, supported by evidence.
About this report 2
What does the report contain? 2
What are the objectives of this report? 2
Who is it useful for? 2
What are the sources and methodology? 2
The used car finance market 4
Market size and growth 4
About Apex Insight 5
Company background 5
Consulting services 5
Commercial / operational due diligence 5
Custom market analysis 5
Primary research 5
Growth strategy 5
Related research 5
Research subscriptions Error! Bookmark not defined.
Contents Error! Bookmark not defined.
List of charts and tables 11
Used car finance market 13
Definition of the market 13
Types of finance offered to purchase cars 13
Hire Purchase 13
Personal Contract Plan (PCP) 13
Alternative products 14
Non-POS car loan 14
Personal loan 14
Mortgage further advance 14
Credit Card 14
Types of customers 14
Market size and growth 16
UK car market 16
Dealer sales 18
Franchised dealers 18
Independent dealers 18
Other vehicle distributors 19
Motor finance penetration 19
Motor finance volumes 19
Non-prime lending 20
Market Drivers 22
Regulatory landscape 22
FCA authorisation 22
Regulatory requirements 22
Recent regulatory developments 22
UK Economic performance 24
Consumer borrowing 25
Ability to service borrowing 25
Source: Bank of England Financial Stability Report November 2017 26
Other market drivers 27
Competitive landscape 28
Success factors in dealer POS finance 28
Market size and share 30
Sub-Prime sector 30
Split by channel 31
Major lenders 32
Barclays Partner Finance 32
Black Horse (Lloyds Banking Group) 33
Close Brothers Motor Finance 34
Recent developments 35
Hitachi Capital 35
Recent developments 36
Recent developments 37
Santander UK plc 37
Recent developments 38
Other lenders 39
1st Stop Car Finance 39
Recent developments 39
Advantage Finance 40
Recent developments 40
Billing Finance 41
Recent developments 41
Blue Motor 42
Recent developments 42
First Response 43
Recent developments 43
JBR Capital 43
Recent developments 43
Mallard Vehicle Finance 44
Recent developments 44
Recent developments 45
Recent developments 45
NIIB Group 46
Recent developments 46
Oodle Financial Services 46
Recent developments 46
Recent developments 47
Private & Commercial 47
Recent developments 47
Raphaels Bank 48
Recent developments 48
Recent developments 48
The Car Finance Company 49
Recent developments 49
Other funders 49
Admiral Loans 49
Car Finance Limited 49
Car dealer finance brokers 50
Auto Union Finance 50
DSG Financial Services 50
Evolution Funding 50
Jigsaw Finance 50
Mann Island Finance 50
Motion Finance 50
Whichdeal Limited 50
Key driver forecasts 51
Economic growth 51
Interest rates 51
Amount of consumer debt 51
Unemployment and underemployment 52
Household disposable income and wages 53
Used car sales volume forecasts 54
New car sales volume 54
Used car sales volume 54
Our forecast scenario for used car sales volumes 54
Motor finance penetration 55
Regulatory impacts 55
Other drivers of finance penetration 56
Our forecast scenario for used car finance penetration levels 56
Forecast used car finance values 57
Appendix: abbreviations 58
List of charts and tables
Market participants 4
Used vehicle new secured finance agreement volumes (Thousands): Actual and forecasts 4
Car parc (millions) 16
Car sales – volume (millions) 16
Average period between car sales / years 17
Dealer car sales – volume (millions) 18
Consumer vehicle finance penetration level – transactions financed as % of total 19
Total advances – volume / ‘000 20
Total new consumer POS advances – value / £bn 21
Key FCA regulatory requirements for car dealers 22
UK real GDP / % annual changes 24
UK outstanding unsecured consumer credit / £bn 25
Historical number of unemployed and underemployed / m 25
UK median earnings (current prices) and real household disposable income annual growth rates / % annual change 26
UK household debt to income ratio 26
Market participants 28
Breakdown of annual new lending 30
Volume and value of used cars finance in 2017 (millions and £ billions) 31
Clydesdale Financial Services Ltd. used vehicle secured finance net investment - £m 32
Lloyds Banking Group UK used vehicle secured finance net investment - £m 33
Close Brothers used vehicle finance net investment - £m 34
Hitachi Capital used vehicle net investment £m 35
MotoNovo UK used vehicle net investment £m 36
Santander Consumer Finance UK used vehicle net investment £m 37
1st Stop Car Finance Limited Financials 39
Advantage Finance Limited Summary Financials 40
Billing Finance Limited Financials 41
Blue Auto Holdings Limited Financials 42
First Response Finance Limited Summary Financials 43
JBR Capital Limited Financial Summary 43
Mallard Leasing Ltd. Summary financials 44
Marsh Finance Ltd. Summary Financials 44
Moneybarn No. 1 Ltd. Summary Financials 45
Moneyway (Secure Trust Bank) Summary Financials 45
Oodle Financial Services Limited Summary Financials 46
Paragon Banking Group PLC Summary financials 47
PCF Bank Ltd. consumer finance division summary Financials 47
Startline Auto Receivables Ltd. and Startline Motor Finance Summary Financials 48
The Car Finance Company (2007) Limited Summary Financials 49
UK real GDP / annual changes 51
UK historical & forecast unsecured household debt / £bn 52
Unemployment and underemployment / m 52
Number of people in employment / m 53
UK median earnings (current prices) and real household disposable income annual growth rates / % annual change 53
Historical and forecast car sales – volume / £m 54
Historical and forecast used vehicle finance - volume ‘000 56
Historical and forecast used vehicle finance - £ billion 57