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00:00:00
>> Might this be where the next financial crisis starts? Consumers in the US and UK have been binging on new cars at the head of rock bottom rates for allowing them to snap up fresh wheels using cheap loans. US auto lending now totals over $8 trillion. While in the UK, borrowing to buy cars doubled over the period, to about $47 billion.
00:00:23
Britain's Financial Conduct Authority among those to find this worrying, and now a shock could be coming. On Thursday, the Bank of England is expected to raise rates for the first time in ten years. Reuter's banking correspondent, Lawrence White.>> So the vast bulk of these car loans are not done by banks, but by the finance arms of the car manufacturers themselves, like Volkswagen, BMW, and Ford.
00:00:48
So if there were to be a spike in defaults, people unable to pay for those loans, it's those car companies who would suffer in the first instance. Then, of course, the fear is it could spread to the wider economy.>> Cheap loans from automakers covered nearly 90% of new car purchases in the UK last year.
00:01:04
That's almost double the rate a decade ago. And it's on top of a wider spending spree. Mortgage and credit card borrowing is rising fast on both sides of the Atlantic. And many borrowers have never had to think about a rate rise.>> There's around 8 million adults in Britain according to
INAUDIBL
] Research who've never experienced a rate hike in their lives.
00:01:26
So they've never had the experience of suddenly having a monthly payment on their mortgage, on their credit cards, on their car, all going up at the same time.>> The same is true of the US where rates are already on the up, and more car loans are turning bad.
00:01:40
Arrears on auto debt hitting an eight-year peak earlier in 2017, according to the New York Fed. Now if you think more rate hikes will mean it's 2008 all over again, banks are prepared for tough times by setting aside much more cash to cover loans that turn sour. Just how prepared the UK and US car buyers are, though, that's about to be tested.