Jane Whittle warns a small credit blemish from years ago may hamper Mondeo Man
Whisper it softly, but 2013 could just be the year when the motor industry sees Middle Britain mobilising again. With more incentivised finance deals around than you could shake a dipstick at, many middle-income couples will be deciding it’s finally time to point their pensionable Peugeot to the new car showroom for its last journey.
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Hard-working and frugal families deserve a break as much as the car retail sector, and the Government’s Funding for Lending scheme seems to be satisfying both parties for the present. There’s even an extra bonus for used car retailers such as ourselves because the increased volume of trade-ins will help to swell a supply chain that’s been looking worryingly thin of late.
For the industry, I’m delighted. But for the sector of society which Tony Blair defined all those years ago (seventeen, actually) as represented by "Mondeo man", I’m more circumspect. The reason is that large numbers of people in comfortable income bands may soon be discovering that their assumed status as trustworthy Middle Britons is not shared by the lenders.
We’re not talking here just about the providers of personal loans. Many of the deals with those attractive headline rates cover a wide range of financial products, most notably personal contract purchase as well as leasing and hire purchase. But whatever the mechanism for achieving a sale, its realisation will fail or succeed every time on the outcome of a credit check.
Let’s say it’s four years since our sample couple bought their nearly new family Peugeot. Their credit check then revealed a late credit card payment (they were on holiday), a missed direct debit to a wine club (they cancelled the mandate too early), and an instance of exceeding their overdraft limit (his salary had been delayed two days that month).
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By GlobalDataHardly evidence of a history of repayment problems – and the bank agreed, especially given both husband and wife were earning good money in secure jobs, and had virtually no borrowing.
Fast-forward 48,000 miles and the same couple now agree they can afford the £240 a month on a PCP scheme that will get them a shiny new German marque. Unfortunately, those minor blemishes on their file occurred five years previously, and haven’t yet been expunged by time.
The finance provider’s automated underwriting system doesn’t care that the couple had overlooked just one mixed case of Chilean reds, and immediately delivers its verdict: application declined.
Name literally any profession, and I can guarantee that it will have been represented by an applicant for The Funding Corporation (TFC) car finance in recent times. In the past there may have been a stereotypical ‘non-prime customer’, but nowadays that’s not the case. The prerequisite of a squeaky-clean credit file by mainstream lenders has meant that even the most prudent Middle Britain borrowers can receive the same curt decline as a serial defaulter might expect.
Of course, we carry out credit, fraud and other checks. And of course, we test affordability as a principal criterion. But often, our final lending decision will depend on the outcome of a one-to-one conversation between the applicant and a TFC underwriter who will quickly be able to assess if, like many, this person is just a victim of past lapses which have since been remedied.
So, our predictions for 2013? First, the realisation by increasing numbers of comfortably-off couples that "salary rich" and "credit poor" can work in the same sentence. Secondly, lots more commission payments averaging £300 per sale to the financial intermediaries and motor traders who point customers our way. And thirdly, rather more careful scrutiny of the T&Cs of wine club offers by one particular couple.
Jane Whittle is marketing manager of the Funding Corporation
