Specialist lender says motor finance scandal and Budget weighing on sector

A specialist lender has warned that the motor finance scandal is causing “chaotic” conditions in the market while the Budget has weighed heavy on consumer and business confidence.

S&U, which provides car finance through Advantage Finance, said trading conditions had been “burdened” over the first half of its financial year.

The company referred to a recent ruling in the Court of Appeal that it was unlawful for car dealers to receive commission from lenders without fully informing customers of the arrangement.

S&U, which is listed on the London Stock Exchange, said the decision “sought to impose a new, but retrospective, duty of care on lenders and brokers throughout the sector”.

It added that the ruling caused “chaotic market conditions” which led to some lenders pausing lending altogether.

This contributed to a 33% drop in advances, meaning short-term credit, so far this year compared with last year.

“Together with a poorly received Government Budget in the same month, which has plunged consumer and business confidence to the lowest levels for four years, this has curtailed the sector’s growth ambitions and cast doubt over the new Government’s plans to ‘Get Britain Working’,” the company said.

Net receivables for Advantage Finance – meaning the amount of money owed to the lender that it expects customers to be able to pay – were £295 million at the end of the period, a 10th lower than the prior year.

Nonetheless, S&U said it was lifted by a stronger financial performance for its property bridging finance arm Aspen Finance.

This was partly thanks to growing demand from smaller entrepreneurs to “fill the gap” in the Government’s house building targets, which has created more bridging opportunities, it said.