Rising interest rates push leasing costs up

Higher Bank of England interest rates are leading to an increase in company car and van lease costs, according to the Association of Fleet Professionals (AFP).

Denise Lane, board director at the industry body, explained that increases were being widely reported by AFP members and were also affecting vehicles already on order.

She said: “Businesses are waiting on the delivery of an historically large backlog of vehicles because of ongoing production issues and some leasing companies are increasing their lease rates on these because of the higher base rate. Typically, the increases are around 1.5% with a low of around 1% and a high of 2%.

“The leasing companies involved are generally being very open and transparent about the cause. Most are providing calculations to show the additional interest by taking the Bank of England base rate at the time of the vehicle order and the equivalent figure now, then applying the difference of the outstanding average capital."

Some leasing companies are reporting repeated changes to list prices and/or specifications for cars on order, frequently requiring five or six seperate communications with the cutomer for every vehicle.

The situation is exacerbated for electric vehicles with their higher P11D prices, which is putting some cars out of reach of employees in certain bands, while the total cost of ownership calcuations mean that electric vans are currently more expensive then diesel.

“The AFP’s view is very much that this is being driven by financial factors that are completely out of the hands of the leasing suppliers involved but it does create problems that are not just about having to pay higher costs. For example, the increases may move vehicles between company car bands or mean that the lease rate exceeds employee entitlements," Lane said.

“This creates some difficult decisions about whether to keep the vehicle on order, especially if a build or delivery date has been provided, or whether to start the ordering process again from scratch for a lesser vehicle choice, which could result in the loss of previously agreed manufacturer discounts and will almost inevitably mean a further delay.”

Lane warned that if, as expected, the Bank of England increased rates still further in the coming months, it would almost inevitably mean additional rises.

“With inflation running at over 10%, the Bank of England has already signalled that further base rate rises are almost certain, which will mean further knock-on increases in vehicle lease rates before the end of the year and possibly more in 2023,” she added.