Voluntary terminations (VTs), voluntary surrenders and repossessions rose in May 2023 to the highest level for nearly two years, according to the Motor Auction Group (MAG).
MAG expects this figure to rise dramatically over the next 12 months as interest rates and the rising cost of living continues to negatively impact car owners’ disposable income.
VTs and repossessions comprised 57.5% of MAG’s finance company disposals in 2020 when the FCA advised credit providers not to enforce repossessions before 31 July as part of its post-pandemic financial support package and 51.5% in 2021.
However, in 2022 that figure fell dramatically to just 14.1%, but during the rest of 2023 and into 2024 MAG anticipates that the monthly figure will rise above 50% again.
“We have become specialists in collecting VTs and repossessions over the years and the general feeling is that after a period when the market has been relatively starved of volume this is starting to slowly return to pre-Covid volumes,” explained Zoe Sutton, MAG’s sales director.
There were two major reasons VT levels dropped in 2022. Firstly, those consumers who were behind with their car finance payments took advantage of the massive rise in used car prices and cashed out halfway through their agreement and got paid the difference.
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Secondly, consumers took advantage of the circa 30% rise in used prices and sold their vehicles to car-buying services rather than voluntarily terminating them thus avoiding compromising their credit risk.
“The FCA protection for drivers with a car loan was similar to those provided to homeowners and gave welcome relief for drivers who had lost their job due to the Covid pandemic,” said Sutton.
“The rise in used car prices also helped protect several drivers from having their credit blacklisted but the market is starting to sense that things are changing,
“In an ever-changing market where some lenders have closed their books to new business, we could see VTs and repossessions reach pre-pandemic levels later in 2023 because of the continuing challenging economic situation.”