Photographer: Noah Friedman-Rudovsky/Bloomberg

Taking Out a Car Loan? Bank of England Officials Are Watching

First mortgages, then credit cards, now automobiles — the Bank of England is keeping an eye on every type of debt being taken on by Britons, and car financing is no exception.

Loans for cars through dealerships have been an important contributor to the acceleration in household credit in recent years, the BOE said Wednesday in its quarterly Credit Conditions Survey.

The central bank has been monitoring whether the increasing amount of lending to households is a threat to financial stability. Record-low borrowing costs and household savings levels have officials worried that the expansion is unsustainable and leaves the economy vulnerable.

The annual growth rate in consumer credit picked up to 9.3 percent in February, the fastest pace since December 2005, the BOE said, with car finance playing a key role in the pickup in non-credit card loans. Governor Mark Carney said in January that autos were the main driver of the pickup in unsecured credit and that the bank needs to be vigilant.

 “Strong growth in consumer credit” partly “reflects increased use of finance secured on the purchase of vehicles,” stability officials said in a statement from their policy meeting on March 23.  The Financial Policy Committee “will continue to monitor the composition of new consumer credit, and the implications this has for the debt-servicing ability of the most vulnerable households and the resilience of lenders.”

Figures from the Finance & Leasing Association show that car financing through dealerships last year was double its level in 2011.

Almost 519,000 cars were registered in the U.K. in March, according to the Society of Motor Manufacturers and Traders, the highest level since 1999. Chief Executive Officer Mike Hawes said that registrations should remain at a high but stable level over the year, “but could be undermined by political or economic uncertainty.” 

Moody's said Wednesday that the cost of cars could rise if Britain votes to leave the European Union in its June referendum, particularly if post-“Brexit” trade agreements are less favorable for auto imports from the EU than they are currently.

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