interest rates to 3 per cent was welcomed with relief by motor
retailers.
The decision to cut rates by 150 basis points – the largest
reduction since the Bank of England gained the power to set
interest rates in 1997 – is “positive news for consumers and
business”, said the director of the RMIF’s National Franchised
Dealers Association, Sue Robinson.
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However, Robinson warned, the rate cut must be passed on to
consumers and businesses “to restore confidence in the
marketplace.”
A lower cost of borrowing could bring some relief for dealers.
Acceptance rates for finance customers at the point of sale have
recently fallen, as lenders have become more risk-averse. If the
cost of money falls as a result of a lower base rate, motor finance
houses may relax their underwriting standards and accept more
finance customers – although how long the cut will take to filter
through to the point of sale is less easy to predict.
A spokesman for HBOS, the parent of motor finance provider Bank
of Scotland Dealer Finance, said: “Lending rates for dealers are
reviewed on a case-by-case basis. These rates are negotiated
directly between the bank and each of its customers. Each loan or
overdraft rate is priced according to a number of factors including
the risk profile of the business, the size of lending and the cost
of funding.
“However, the cost of funding has increased substantially in the
wholesale markets and HBOS, like other banks, is reflecting this
cost in its pricing. This means that the cost of money for business
owners is shifting from historic lows in recent years to levels
which reflect the current cost of funding. We will be reviewing
these rates again in light of the Bank of England’s 1.5 per cent
base rate cut.”
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By GlobalDataFleet relief?
Fleets facing a hugely increased cost of funding may find the
rate cut brings little immediate relief, said director-general of
the BVRLA, John Lewis. ““In the long term this hefty cut will help
improve the cost and availability of credit, but people need to
realise that this will take time to feed through to the market.
Even then, they probably won’t see the full benefit of the 1.5
percentage points cut,” he warned.
“Our leasing company members confirm what leading economists
tell us in that the Bank of England policy rate no longer bears the
historic direct relationship to the interest rates banks are
charging them for credit. The real problem is with banks and their
general lack of confidence in lending money. With a recession in
full effect, this is not going to improve overnight,” Lewis
added.
