Drivers handed 'welcome relief' as lower interest rates set to have major impact on car prices
Bank of England lowers interest rates for first time since 2020
PA/GETTY
Drivers are set to benefit from cheaper cars as the interest rate drops offer a promising push for the automotive sector.
The cheaper costs follow the Bank of England lowering the interest rate from 5.25 per cent to five per cent, a move which has not happened since 2020.
The Bank's Monetary Policy Committee voted to reduce the base rate from the current level after the target for the consumer price index was reached.
The change in percentage will mean that the amount drivers pay on vehicle purchases and car loans could be significantly less.
Do you have a story you'd like to share? Get in touch by emailingmotoring@gbnews.uk
UK car production dropped by 7.6 per cent in the first half of 2024
GETTYThis marks a crucial change for the automotive industry which is still recovering from high inflation and the offset of Russia’s invasion of Ukraine.
The struggles saw car production in the UK drop by 7.6 per cent in the first half of the year, according to the latest data from the Society of Motor Manufacturers and Traders.
Philip Nothard, insight director at Cox Automotive explained that the Bank of England's decision to reduce the base rate by 0.25 per cent to five per cent marks a “positive turn” for the automotive industry.
He said: “This reduction will lower the cost of vehicle purchases and ownership for consumers, making cars more affordable and accessible.
“Businesses will benefit from reduced financing costs, encouraging investment and growth within the sector.”
Additionally, Nothard detailed how the decrease in the overall cost of living will boost consumer confidence and spending power.
This could in turn stimulate demand for new and used vehicles. “This move by the BoE is a welcome relief for the industry, promising a brighter outlook for the coming months," he highlighted.
Meanwhile, Mike Hawes, SMMT Chief Executive, said the group welcomed today’s cut in interest rates as it should help reduce the cost of borrowing and "given most new vehicles are bought on finance, help support growth in the new car and van markets".
He detailed: "While attractive manufacturer deals are already in place, notably for lower and zero emission vehicles, we must pull every lever to drive fleet renewal, including investment in fiscal incentives and infrastructure, if we are to keep the decarbonisation of road transport on track.”
Elsewhere, a spokesperson for the AA, noted that about 90 per cent of new cars are funded via a finance arrangement.
With interest rates falling, the annual percentage rate on car finance is likely to go down in due course. "However, those already in finance agreements will be unlikely to see any decreases until the end of their contract or at break points," the AA added.
The spokesperson stated that most car finance agreements use fixed interest rate which stays the same for a set period of time which is specified in a contract.
Variable interest rates are more commonly used on mortgages, but with interest rate dropping, the AA said this is good news for people about to buy a car "but won’t affect those on fixed interest deals".
LATEST DEVELOPMENTS:
Drop in interest rates seen as a 'positive step' for the car industry
GETTYIain Reid, head of editorial at Carwow explained that deals vary from manufacturer to manufacturer. Offering an example, he said a Ford Puma can be had with a 3.9 per cent APR PCP deal, while VW's PCP offer on a Polo is 6.8 per cent.
"With many car makers pushing sales of electric vehicles hard, you can find zero per cent APR PCP deals on cars such as the Renault Scenic or Toyota bZ4X. So shop around to find the car and the deal that is right for you," Reid commented.