Leasing Professionals

Paul Burgess warns of auto finance underwriting changes ahead in the wake of Brexit

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Dealers need to take a fresh look at their auto finance lending panel and see whether it is still fit for purpose in a post-Brexit world.

With the decision to leave the EU set to affect a range of factors from consumer confidence through to the cost of borrowing, existing lenders may no longer be appropriate for the needs of both dealers and customers.

Current lending panels will have evolved to meet the trading conditions seen in the last few years, where consumer confidence has been generally good while new and used car sales have been buoyant.

This means that prime lenders will have been relatively relaxed and dealers will have had to switch to non-prime in relatively few cases. Lending decisions have been fairly simple.

The market we are now entering is likely to be different.

All lenders are likely to tighten up on their lending rules and fewer prime approvals will be the result. If dealers do not construct more flexible lending panels as a solution to this, they will have no choice but to send increasing numbers of customers to non-prime lenders, with the often-punishing interest rates and other negative factors that accompany them.

What dealers need to do is to construct a lending panel that provides a broader spread of options with a range of different lending rules.

It is neither good customer service nor very ethical to be sending large numbers of your customers to sub-prime lenders. You need intermediate lenders who are neither prime nor sub-prime to fill the gaps in a tougher market.

This is an area in which we have increasingly been working and we are already finding that dealers are becoming progressively more receptive to this way of thinking. So far this year, we have been added to the lending panels of 20 dealer groups and we expect more to follow.

In a post-Brexit market, it is also important for dealers to regularly review lending panel arrangements.

We may well enter recession within the next 12 months and, in that situation, it becomes ever more important to have the right lending arrangements in place. Consumer confidence and lenders’ rules can change very quickly. A product that may have been suitable one month may no longer be quite so appropriate the next.

You need to keep on top of the lenders and products that are available in the market place and ensure that you have the best possible options in place.

 Paul Burgess is CEO at Startline Motor Finance