What next for the financially hard-up motorist?

by Clive Sutton - Wednesday, 8th October 2008 -

Whilst London's motorists have breathed a sigh of relief following the departure of Ken Livingstone’s proposed £25 congestion charge, the government’s new road tax hikes are still going to affect many UK families. They will now find increases in running costs and heavy depreciation of their vehicles.

Many motorists taking the step to trade in their family motor for a smaller, greener model are facing a significant negative equity problem. In fact, most mid-market cars are now approaching scrap value within seven years. Recent changes to the Consumer Credit Act have also caused further head ache for the motorist. Not only is there often cash to find to get out of their existing car, but there is often a higher deposit and higher monthly payments associated with the new car.

Since April of this year the right of voluntary termination of consumer finance agreements has been extended to become available to the whole market. Up until then, only consumers borrowing less than £25k have had the right to voluntarily terminate a finance agreement once 50 per cent of the agreement time has been completed.

Now that the £25k limit has been removed, this has caused most finance companies to withdraw from the ‘high balloon, low payment deals’ – nobody is willing to have vehicles returned with significant negative equity without recourse to the borrower!

The new laws, designed to protect consumers, have actually removed the repayment terms that have enabled many motorists to afford the models that they aspire to and have left the retail motor industry with yet another challenge in what is already a difficult market. The only exemption to this new predicament is if you are lucky enough to be a high-net-worth individual (certified by your accountant) or if you declare that more than 66 per cent of your mileage is for business use.

The answer to this situation for most consumers is sorting out finance terms that match their budget BEFORE going out to buy a car. Figures for 2007 suggested that more than 80 per cent of new cars sold were financed or leased in some way. About half of this financing was arranged by the dealer and the other half independently by the consumer. For 2008, the percentage of finance dependant car buyers has already shown an increase and will continue to do so.

I have set up an online financing broking site www.premfinance.co.uk to provide consumers with a quality independent finance brokerage online. By pre-qualifying your finance budget against current lending criteria you can then see what capital budget you really have for a new or used car.

These financial issues are further compounded by the lack of clarity as to what the long term taxation policies will be on the various types of vehicles and emissions. Many Londoners rushed out to buy cars with sub 120 gm/km of CO² emissions to enable a congestion charge exemption. Now that Livingstone has gone, so too has this policy and now those people are left with a relatively expensive small diesel car with the one consolation of a £35 annual road tax. Even Porsche have announced a sub 225gm/km CO² version of the 911 for 2009 which would have avoided the £25 congestion charge, a development which some may now say has proved unnecessary.

Meanwhile, the ongoing rise of the cost of fuel, diesel in particular, is actually making some people think twice before jumping into their car. Why the government doesn’t reduce the tax and duty on diesel which has a better emission profile, I do not know.

The same old muddled half-baked policies have left us with more uncertainty and more costs. And with declining Labour popularity, it remains to be seen whether a U- turn on the scaled road tax charges and fuel duty will follow to try and reverse the governments decline.

Picture source