Increases in the Bank of England interest rate have caused a spike in the price of company cars and van leases by an average of around 1.5%, according to the Association of Fleet Professionals (AFP).
The organisation said the increase was “not uniform” among leasing companies but had been reported widely by its members and was primarily a response to the increase in the cost of finance between the time at which the customer placed the order and the delivery date.
“Businesses are waiting on the delivery of an 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,” said AFP board director Denise Lane. “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 highlighted the issue one day before the Bank of England raised its base rate of interest by 0.75 percentage points to 3% on 3 November, so motor vehicle lease rates could rise further still – which the AFP has predicted could happen “before the end of the year and possibly more in 2023”.
The Bank of England’s base rate is due for its next review on 15 December, almost a month after the government’s autumn statement on 17 November, which is expected to usher in £60 billion in tax rises and spending cuts.
Lane suggested that rising lease rates could create ancillary problems for businesses and drivers beyond cost. Prices could increase to the point where the vehicle exceeds the limit of a particular employee’s allowance, although this would not have been the case at the point of ordering.
“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,” Lane said.
Last month, the Finance and Leasing Association reported that consumer car finance new business volumes increased by 5% in August and, for the year to date, was also up by 5% on 2021. Although separate from the company car sector, consumer motor finance is just as affected by interest rates and vehicle lead times.
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