The rate rise lands where 89% of private new car sales are financed

The Bank of England raised Bank Rate to 4% on 5 November, the first increase since August 2023. Tracker mortgages moved within hours. Car finance moves more slowly, because the monthly payment is fixed for the term. The number that decides how much it matters is 89: the share of private new car sales that Finance & Leasing Association members financed in August.

What the committee decided

The Monetary Policy Committee voted eight to one to lift Bank Rate by a quarter of a percentage point, from 3.75% to 4%. Catherine Mann was the dissenter, preferring half a point to 4.25% (Bank of England, 5 November).

CPI inflation was 3.5% in September, up from 3.1% in August, and the Bank expects it to reach about 5% by the middle of 2027. The conflict in the Middle East is in its ninth month, and higher fuel and utility bills will keep feeding through while it lasts.

Andrew Bailey, the Governor, was careful about what comes next. "Today's increase shouldn't be seen as the first in an inevitable long sequence of hikes," he said. "But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase" (Bank of England, 5 November). The next decision is on 17 December, and an agreement already signed is unaffected either way: its monthly payment and term are fixed. The price of the next one is not, because it is quoted from funding costs that move with Bank Rate.

The 89%

The FLA's August figures, published on 27 October, put consumer car finance advances at £2.82 billion across 149,343 cars. Over the 12 months to August, members advanced £42.9 billion across 2.12 million cars, 7% more money and 3% more cars than a year earlier (FLA, 27 October).

Geraldine Kilkelly, the FLA's director of research and chief economist, said members financed 89% of private new car sales. That makes finance the private market's sales channel rather than a sideline, and it is not spread evenly. The FLA's table gives an average advance of £27,878 on a new car in August, against £15,377 on a used one. Used cars accounted for 72% of the agreements and 58% of the money.

The SMMT's October release puts private demand at 58,229 cars, up 4.1% and a 38.1% share, while fleet registrations rose 5.4% to 89,985, or 58.9% of the total (SMMT, 5 November). The private buyer is the smaller half of the market, and the half that signs at the point of sale.

New car finance is growing, used car finance is not

In August, consumer new car finance rose 21% by value and 22% by volume against a year earlier. Consumer used car finance fell 6% on both measures. Across the eight months to August, new car volumes were 17% higher and used car volumes 3% lower (FLA, 27 October).

A used car has no manufacturer behind it to buy down the rate. A new one often does. The 0% and low-rate offers on the forecourt are typically put up by the manufacturer for a new car and rarely available on a used one (carwow). The cheap money sits where the registrations are needed.

The SMMT says industry and government are spending billions on incentives to move electric cars, including the Electric Car Grant, and its chief executive, Mike Hawes, says that support "cannot be sustained indefinitely with the gap to mandated targets set to more than double by 2028" (SMMT, 5 November). The mandate gap is why the discounts exist, and the discount is a large part of why new car finance is growing while used finance shrinks (our report on the October registrations).

Why the cheap deals get dearer to fund

A 0% offer is a subsidy with a rate attached. The lender still wants a return, so the manufacturer pays the difference between the advertised rate and the rate the lender would otherwise charge. When wholesale funding costs rise, that difference widens. The headline rate can stay at 0%, but the cost of keeping it there goes up.

That cost lands on a manufacturer already spending to meet the mandate, and it arrives when the market depends on the subsidy most. Battery electric cars took 32.0% of October registrations, their highest share of the year, and the SMMT expects the full-year share to reach 27.2% against a 33% target (SMMT, 5 November). A quarter-point rise does not end those offers. It makes them more expensive to repeat.

The other half of the monthly payment

A PCP payment is interest plus depreciation. The interest side has just moved. The depreciation side has been moving too. Solera cap hpi's October read put three-year-old values down 1.7%, about £350, with battery electric cars the only ones to rise, up 0.6% or £70 (Fleet News, 29 October; our report).

When trade values fall, lenders tend to mark down the residuals they assume for new cars, which leaves a bigger gap between the price and the balloon payment, and a bigger monthly payment for the same car. The rate rise and the residual move are separate, and they push in the same direction.

What it means at the kitchen table

On a four-year repayment loan of £27,878, the average new car advance in August, a quarter-point rise adds about £3 a month. On the average used advance of £15,377 it adds about £2. Those are small sums. The base they sit on is not: 2.12 million agreements in the year to August, and 89% of private new car sales.

Timing matters more than the size. A buyer quoting in November is pricing against a base rate that has just risen and may rise again. A buyer who signed in September is untouched. Sue Robinson, chief executive of the National Franchised Dealers Association, said the increase "will be disappointing for automotive retailers and consumers", and warned that higher borrowing costs "could further impact vehicle affordability and consumer confidence" (Fleet News, 5 November).

The next decision

The MPC meets again on 17 December. Bailey's opening remarks were plainer than his summary: "Unless progress towards resolving the conflict is made, or there is other news which softens the risks to inflationary pressures, a further increase in Bank Rate may be warranted" (Bank of England, 5 November). Oil prices fell after the US midterm results, which he said would affect his view from here (BBC News, 5 November).

The car market's growth is being bought with finance, and the cheapest finance is on new cars. The subsidy that keeps it cheap is under pressure from the same rate rise. A quarter point is not a crisis, but the monthly payment is set by the lender's cost of money and the residual, not by the sticker price alone.

Sources

• Bank of England, "Bank rate increased to 4% - November 2026 Monetary Policy Summary and Minutes", 5 November 2026. bankofengland.co.uk
• Bank of England, "Interest rates and Bank Rate: our latest decision", 5 November 2026. bankofengland.co.uk
• Bank of England, "Monetary Policy Report press conference: Opening remarks by Andrew Bailey", 5 November 2026. bankofengland.co.uk
• BBC News, "Interest rates hiked to 4% in first increase in over three years", 5 November 2026. bbc.co.uk
• Finance & Leasing Association, "Consumer car finance new business volumes grew by 1% in August 2026", 27 October 2026. fla.org.uk
• SMMT, "Year-end push lifts EV sales but Mandate gap set to widen", 5 November 2026. smmt.co.uk
• Fleet News, "Bank hikes interest rates as inflation predicted to hit 5%", 5 November 2026. fleetnews.co.uk
• Fleet News, "New car discounts put pressure on used car prices", 29 October 2026. fleetnews.co.uk
• carwow, "0% APR car finance deals", accessed 6 November 2026. carwow.co.uk