A combination of interest rate rises and increased lending prudence means there is ‘little doubt’ that the consumer credit market will face major changes, according to Karl Werner, chief executive officer of MotoNovo Finance’s Motor Division

On 25 September, the Bank of England Financial Policy Committee (FPC) said it had found pockets of risk in the lending community, partly as a result of lenders placing too much faith on current benign conditions.

This came alongside a growing, general concern around the expansion of consumer indebtedness and fears around the capacity of consumers to manage their credit in the event of a rise in interest rates – which has been rumoured recently.

MotoNovo noted: “With all the signals that the first increase in interest rates in more than a decade is now firmly on the cards, evidenced by a sharp rise in LIBOR money costs, the risks of an increase in bad debt are very apparent.”

Werner said that, following almost a decade of motor finance growth, the combination of rising interest rates and tighter credit conditions could be a new experience for many players in the industry.

Concluding, Werner said: “The winds of change in consumer credit have been building for a while now; it is time to re-calibrate in certain areas, notably risk management and pricing. As a business, our success and that of our dealers has come from a long-term approach and seizing ‘first mover advantage’ in areas such as innovation and technology.

“To secure long-term success and to support customer retention, we will not be afraid to move first to help secure the long-term future of dealer finance. No dealer benefits from choosing a lender with a model which proves unsustainable.”