Higher Bank of England interest rates mean that company car and van lease costs are beginning to increase, the Association of Fleet Professionals (AFP) is reporting.

Denise Lane, board director at the industry body, explained that the increases were not uniform across the market but were being widely reported by AFP members and especially appeared to be affecting vehicles already on order.

She said: “Businesses are waiting on the delivery of a historically large backlog of vehicles because of ongoing production issues and some leasing companies are increasing their lease rates on these because of the higher base rate. Typically, the increases are around 1.5% with a low of around 1% and a high of 2%.

“The leasing companies involved are generally being very open and transparent about the cause. Most are providing calculations to show the additional interest by taking the Bank of England base rate at the time of the vehicle order and the equivalent figure now, then applying the difference of the outstanding average capital.

“The AFP’s view is very much that this is being driven by financial factors that are completely out of the hands of the leasing suppliers involved but it does create problems that are not just about having to pay higher costs. For example, the increases may move vehicles between company car bands or mean that the lease rate exceeds employee entitlements.

“This creates some difficult decisions about whether to keep the vehicle on order, especially if a build or delivery date has been provided, or whether to start the ordering process again from scratch for a lesser vehicle choice, which could result in the loss of previously agreed manufacturer discounts and will almost inevitably mean a further delay.”

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Denise said that if, as expected, the Bank of England increased rates still further in the coming months, it would almost inevitably mean additional rises.

“With inflation running at over 10%, the Bank of England has already signalled that further base rate rises are almost certain, which will mean further knock-on increases in vehicle lease rates before the end of the year and possibly more in 2023.”

Consumer car finance new business volumes fell by 1% in April 2022