PCP the next Sub-Prime Mortgage crisis??

[grober]

However its dressed up it surely comes down to a risk/debt/assured asset equation. In many of the personal debt scenarios posted individuals appeared happy that should some form of market crash happen they can often walk away from the situation. This is undoubtedly true but does not deal with what happens to that debt- it doesn't disappear- it simply moves on- if its big enough - it moves up the financial chain to the banks-- who are then discovered to have been lending money they don't have against poorly secured assets --- and have to be bailed out by the government central bank - this in turn effects currency values and government borrowing rates and public expenditure. In other words you and me. Some might deduce from this that the inevitable consequence of profligate lending is we all end up paying one way or another for those who spend beyond their means.


psst:- Wanna buy a bank -going cheap -- two careful owners the Royal Bank of Scotland and The British Tax Payer
Anybody----------???

 

[Red C220]

However its dressed up it surely comes down to a risk/debt/assured asset equation. In many of the personal debt scenarios posted individuals appeared happy that should some form of market crash happen they can often walk away from the situation. This is undoubtedly true but does not deal with what happens to that debt- it doesn't disappear- it simply moves on- if its big enough - it moves up the financial chain to the banks-- who are then discovered to have been lending money they don't have against poorly secured assets --- and have to be bailed out by the government central bank - this in turn effects currency values and government borrowing rates and public expenditure. In other words you and me. Some might deduce from this that the inevitable consequence of profligate lending is we all end up paying one way or another for those who spend beyond their means.

So what you've described here is capitalism in a nutshell, there isn't any real workable alternative unless you think communism is viable and I've yet to see that work effectively as human nature on the whole is to better oneself and always to be a little more equal than the next guy.

The people that do well in capitalism are the one that figure out when to get on and off the cycle and accept that it happens and is very unlikely to change.

 

[rockits]

I agree but the markets should be left more free with less govt intervention but actual better/more regulation. Sounds contradictory but it does make sense. Pay day loans should be outlawed at least at the interest rates levied. A free market shouldn't need pay loans to be outlawed but stupid people need to be protected from themselves.

Banks and many very large global multinationals get away with far too much. Banks should have been allowed to fail and the carnage should have been left to unravel. It would have hurt but people would have learnt the lesson better & harder.

If you cut your finger off most would learn not to do it again. Lessons have not been learnt as not enough pain was felt. Sometimes you just have to learn the hard way & sometimes that is the only way people will learn. Trouble is these lessons would be truly life changing and generations would have to recover from it all.

 

[grober]

So what you've described here is capitalism in a nutshell, there isn't any real workable alternative unless you think communism is viable and I've yet to see that work effectively as human nature on the whole is to better oneself and always to be a little more equal than the next guy.

The people that do well in capitalism are the one that figure out when to get on and off the cycle and accept that it happens and is very unlikely to change.

Bit of a quantum leap from advocating a bit more fiscal/regulatory control of lending to communism surely??

 

[Deleted member 6183]

Bit of a quantum leap from advocating a bit more fiscal/regulatory control of lending to communism surely??

Oh boy...

 

[markjay]

However its dressed up it surely comes down to a risk/debt/assured asset equation. In many of the personal debt scenarios posted individuals appeared happy that should some form of market crash happen they can often walk away from the situation. This is undoubtedly true but does not deal with what happens to that debt- it doesn't disappear- it simply moves on- if its big enough - it moves up the financial chain to the banks-- who are then discovered to have been lending money they don't have against poorly secured assets --- and have to be bailed out by the government central bank - this in turn effects currency values and government borrowing rates and public expenditure. In other words you and me. Some might deduce from this that the inevitable consequence of profligate lending is we all end up paying one way or another for those who spend beyond their means.

psst:- Wanna buy a bank -going cheap -- two careful owners the Royal Bank of Scotland and The British Tax Payer
Anybody----------???

When banks calculate the interest rate they will be offering on a mortgage, they estimate the risk involved and then offer interest rates that are made-up of the bank's expected profit AND the expected loss across their clientèle from bad debts for similar loans.

For this reason, in normal circumstances, bad debt is simply absorbed by those who pay back their loans on time. In an environment when the economy is good and where the culture is such that defaulting on a loan if frowned upon, the bank's overall bad-debt losses will be low and interest rates will be low as well.

But in an environment where banks regularly suffer losses due to bad loans, the interest rate offered will be higher because someone has to pay these losses for the bank to remain profitable overall.

So defaulting on a loan is not exactly a 'victimless crime'... those affected are not the lenders, but ordinary honest people who do pay their loans back on time and will be hot with higher interest rates when they next take a loan or restructure their mortgage.

Very similar to insurance fraud - ultimately it is not the insurer that takes the hit, it's us the public who see our premiums rise to cover these fraudulent claims.

 

[Denis Wall]

I know a few of my Sisters friends live in Barcelona, and the rent compared with here and what you can get there is incredible.

Barcelona is even expensive if you compare with smaller less touristic places in Spain. And not only rent, but even for example property for sale in Torrevieja https://tranio.com/spain/valencia/torrevieja/ is super cheap comparing to France, Britain and probably elsewhere in Europe. I was interested myself in buying property there, just now 've started to hesitate: Torrevieja or Alicante.

 

[gr1nch]

Back to the OP for a minute, I've been thinking that the PCP / Sub-Prime analogy isn't valid. For a start PCP payments are continuously paying for the asset depreciation and interest contribution (to the funding). It's much more tracked and linear than Sub-Prime mortgages which were granted to high defaulting risk buyers on, often, low quality, hard to sell properties in our areas. Yes the banks would get the keys to all these houses, but collectively they were worth less than the sum of money paid out in mortgages. In effect they swapped cash for property with stunning negative equity.

PCP works because there is a very healthy UK market for 2-3 yr old vehicles in good condition. If it goes **** up for diesel cars in the future, then many more owners will be itching to hand their diesels back, to avoid a (car) lifetime of penalised ownership .

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[rockits]

I think this is more about excess, over consumerism and over consumption. In my book greed is not good.

We have all become too fast, too greedy, too wanting, too selfish & too materialistic. We are bleeding the planet dry of its resources.

The answer to the environment or economic problems is not necessarily to reduce emissions but to make things last for longer. We are over producing everything including food in parts of the world, then not eating it, wasting it and burying it in the ground. It is all wrong.

We are making life much harder, much more complex and much more inefficient than it needs to be or should be. The problems need to be resolved at the source not later down the line when it is too late.

We should be shopping more local, buying more local and many of these modern issues would then be far less of an issue. We are going about it in all the wrong ways.

People don't need a new car every 5 mins. It is greedy and really not necessary. Who cares what the Jones' think next door.

The answer isn't to be more efficient with engine technology and fake emissions. The answer is to be more frugal with what we already have. We are just a massive, complex inefficient beast that is out of control.

It certainly is not doing the economy of this country or others any good at all. The figures are all massaged and we are really going down the wrong path. We have learnt a great deal over the years and better to a certain extent for it. However we have also forgotten much of what we already knew which is pretty damn silly and wasteful.

BTW I've not been drinking just really concerned how wrong it has all become. IMHO of course

 

[pembssurf]

I think this is more about excess, over consumerism and over consumption. In my book greed is not good. We have all become too fast, too greedy, too wanting, too selfish & too materialistic. We are bleeding the planet dry of its resources. The answer to the environment or economic problems is not necessarily to reduce emissions but to make things last for longer. We are over producing everything including food in parts of the world, then not eating it, wasting it and burying it in the ground. It is all wrong. We are making life much harder, much more complex and much more inefficient than it needs to be or should be. The problems need to be resolved at the source not later down the line when it is too late. We should be shopping more local, buying more local and many of these modern issues would then be far less of an issue. We are going about it in all the wrong ways. People don't need a new car every 5 mins. It is greedy and really not necessary. Who cares what the Jones' think next door. The answer isn't to be more efficient with engine technology and fake emissions. The answer is to be more frugal with what we already have. We are just a massive, complex inefficient beast that is out of control. It certainly is not doing the economy of this country or others any good at all. The figures are all massaged and we are really going down the wrong path. We have learnt a great deal over the years and better to a certain extent for it. However we have also forgotten much of what we already knew which is pretty damn silly and wasteful. BTW I've not been drinking just really concerned how wrong it has all become. IMHO of course dde09

I couldn't agree more with all of those points, consumerism is out of control. There is no technological reason why we could not get Cars to last for 10-20 years which in the long run would be far more environmentally friendly. When you look at the carbon footprint an electric/hybrid has created just in its manufacture using rare earth minerals and the subsequent CO2 produced getting it out of the ground and then the toxic mess that's made refining said minerals then you are pretty much on a par with running V8 pickup truck for 25 years and that's before the shiny hybrid/electric has even left the showroom. Go to a mine/quarry area in Africa/Brazil and see what our thirst for consumerism is really doing to our world. All we see is the super efficient, clean shiny emissions new car side of things. Not the massive industrial **** fest that's created it. Says me on a Mercedes forum typing on my shiny new iPhone.

 

[gr1nch]

I can't help but agree with the greed and over-consumption points. When I met someone in a stable, happy financial situation it is not often that they have just inherited money or got a windfall - it is most often that they live within their means and are careful with their money, refusing to get sucked into the perpetual short-term upgrades​ mentality or buying needlessly expensive things. Do I really need X? No. So I'm not buying it.

It's going to be imperative for this generation of 18-40s to aggressively become debt-free a lot sooner before retirement than their parents could afford to (who have more disposable income, better pensions)

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[nick mercedes]

PCP works because there is a very healthy UK market for 2-3 yr old vehicles in good condition.

The wheels are falling off PCP because it's far cheaper to lease a new car than finance a used one.

Glut of 36 month old cars nobody wants because new ones are cheaper.

Got an email this morning, new C200 £229 a month, new Mercedes for council tax money...

 

[dejongj]

As the saying goes; you make you money when you are buying (not when your are selling).

I simply do my sums and work out what is the best value; sometimes that is buy outright, sometimes that is PCP, sometimes that is business lease, sometimes it is personal lease.

I don't exclude anything, simply do my sums and act accordingly...

 

[markjay]

The wheels are falling off PCP because it's far cheaper to lease a new car than finance a used one.

Glut of 36 month old cars nobody wants because new ones are cheaper.

Got an email this morning, new C200 £229 a month, new Mercedes for council tax money...

I bought my W203 in 2008 when it was 2 years old, and sold it 9 years later. I lost £9,600 in depreciation, that's an average of £1,055 per year or £88 per month.

I find this more affordable than paying £229 per month, but them I got a 2-year old car and not a new car.

So new cars are not cheaper, but you would expect that, as they are... new.

 

[Alex225]

I was chatting to someone at work the other day about their car. They have a 2 series BMW which is coming to the end of a finance plan and has a balloon payment.

Trouble is they'd put £8k down initially and now with depreciation they owed a lot less than the car is worth. So they ordered another new car but due to this depreciation they only had £2k to put against the car so had to order a lower spec.

I said why not just take it a loan and buy the 2 series. The response was something along the lines of that they'd have to pay for repairs if something went wrong and that they like having a brand new car.

I think this kind of mentality is quite indicative of a lot of people towards cars. New means better even in poverty spec and a car out of warranty is a money pit by default.

My other half lost £6k in depreciation on her last car which was a year old when she bought it and she owned it two years! Running her SL350 and it losing less in depreciation but costing more to run over a year or so still makes it cheaper in the long run than her diesel Focus!

 

[markjay]

...I said why not just take it a loan and buy the 2 series. The response was something along the lines of that they'd have to pay for repairs if something went wrong and that they like having a brand new car.
.

Was it s business lease? The reason for asking is that BIK is based on list price when new, so older cars become very expensive in relative terms (i.e. the amount paid in BIK compared to the current value of the car). This creates motivation for companies to keep replacing cars, as a new car is seen as offering much better value (in relative terms).

 

[gr1nch]

The depreciation on new cars is scary, mine will be, on paper, 50% over the first 3 years, which a quick calculation gives as 1.3% of new cost, each of those first 36 months. The 1st year calculation would be, of course, even steeper.
But that's the premium I was prepared to pay to have, for once, a brand new luxury car with the exact combination of options that suited me.

If I understand PCP correctly, new purchase by PCP, to me, is more akin to leasing than ownership, as most who take up PCPs these days want new, so will be handing back the cars at the end of term or before, without any equity release, and get another new car. Like leasing.

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[nick mercedes]

I bought my W203 in 2008 when it was 2 years old, and sold it 9 years later. I lost £9,600 in depreciation, that's an average of £1,055 per year or £88 per month.

I find this more affordable than paying £229 per month, but them I got a 2-year old car and not a new car.

So new cars are not cheaper, but you would expect that, as they are... new.

I agree, but I think the theory of PCP (in some cases) is that it allows people with limited funds to end up driving a new car.

Problems is that whereas before there was some equity at the end of the term that could be used as a deposit on the next contract, with used cars being worth less, people need to pony up a new deposit.

 

[Alex225]

Was it s business lease? The reason for asking is that BIK is based on list price when new, so older cars become very expensive in relative terms (i.e. the amount paid in BIK compared to the current value of the car). This creates motivation for companies to keep replacing cars, as a new car is seen as offering much better value (in relative terms).

That I'm not sure on mate, I don't think it was but don't quote me.

I was just stunned that they'd opted for a lower spec car to keep the monthly payments the same. Plus they had ploughed £8k of their own money into it as well as the monthly cost to still end up in negative equity on the car. It did seem staggeringly expensive and such a big chunk of money just gone.

Don't get me wrong, some lease/PCP deals are genuinely great and you get a hell of a lot of car for not much money. Other deals just seem to rely on the new car mentality and needing to pay X a month.

There didn't seem to be a lot of rationale behind their reason for the deal they were on anyway.

The depreciation on new cars is scary........But that's the premium I was prepared to pay to have, for once, a brand new luxury car with the exact combination of options that suited me.

Thing is I can 100% understand why people like to have a brand new car. I've bought three brand new cars in my life, albeit if fast Renaults (I still own two of them) and it was great buying the exact car how you want it.

If I was in a position to buy a dream car brand new, ideally an AMG GT, I totally would. But I'd either have to be in a position to actually pay it off after X amount of time or buy it outright (when I win the lottery!). Then I'd keep it until it or I died.

These lease deals are great for getting you into a car that you may not otherwise be able to buy. Ultimately though that money that's being paid only really benefits the finance company and garage when you hand it back with under 10k on the clock and they whack on a nice chunk on top when they sell it.

 

[Deleted member 6183]

The question is whether PCP is the next sub-prime crisis.

It might be in the future and you could argue that the FCA think that it's already heading that way hence their investigation into the way that it is sold.

If gullible punters are signing up to these deals without knowing the consequences then there is scope for unsustainable contracts being completed with potential for repossession which could drive down demand and put a glut of poorly maintained cars back on the market.

If these new car buyers were previously buying used cars then there could easily be a surplus of used cars in the market.

If used cars devalue further then so do balloon payments which, in turn, puts up either deposit or monthly payments which would deflate the new car market.

Of course, it could be that the finance houses are strong enough to weather such events and continue to offer tempting deals to move new metal without worry about the used car market.

I'm beginning to bore myself now.