- Inflation hits a 40-year high of 9.1% and is set to hit 11% later this year according to the Bank of England’s forecast after raising interest rates to a 13-year high of 1.25%
- The Financial Conduct Authority (FCA) writes to lenders, reminding them to support customers in need and ensure their approach to taking on new borrowers takes account of the financial pressure they may face and the impact on their expenditure.
Spiralling inflation, which is set to continue into the Autumn with utility prices set to rise, saw affirmative action by both the Bank of England and FCA designed to address the rising cost of living and support people struggling to meet their payments.
The FCA has written to more than 3,500 lenders stressing the need to support people. As well as helping existing customers, the regulator highlighted the importance of ensuring that lending decisions take account of the financial pressure people may face due to inflation, which is expected to keep rising.
While the Bank of England interest rate increased to a 13-year high of 1.25%, the rate is widely expected to increase further. While such a move may not impact existing fixed-rate finance agreements, the cost of finance for new borrowers is likely to rise as money costs rise. At the same time, as people's disposable incomes are eroded by rising costs, default levels are set to increase, something the Bank of England has already forecast for unsecured loans.
Commenting on the recent developments, Chris Rowthorn, Director of Motor Sales Operations at MotoNovo Finance reflects;
"The speed and level of inflation is a new phenomenon for many people. It is creating hardship that looks to get worse in the months ahead. As a lender, we are committed to helping existing customers impacted by this trend. At the same time, as the FCA reminder directs, we and all responsible lenders must ensure that essential affordability checking takes account of the accelerating cost of living.
Classically, the 'secure' nature of HP and PCP finance is impacted less than unsecured loans by the type of economic 'shock' that we are witnessing, as seen during the pandemic, but nor are we immune from it. At MotoNovo, we are committed to growth and delivering good outcomes for our customers and dealers alike. Against a deteriorating economic backdrop, we will seek to collaborate even more closely with our dealers to create affordable acceptances and in this respect our unique risk-based pricing model, MotoRate’s flexibility is likely to be invaluable."
Press release issued by MotoNovo Finance, June 2022