New data on Personal Contract Plans published

This Economic Letter and press release was updated on 13 September 2018 to reflect the receipt of revised data from a small number of reporting agents. While the revision impacted a number of categories, there was a large downward revision to the number of outstanding PCP contracts from one reporting agent. The overall figure for Ireland was therefore revised down to 76,582 from 126,249 for all entities. The changes primarily impact section 3 of the Economic Letter. The change in outstanding contract numbers does not alter the conclusions of the research – the observed trend of rapid growth in the market remains valid and outstanding PCP lending volumes are broadly similar to those previously reported.

An Economic Letter by Martina Sherman, Tiernan Heffernan and Bryan Cullen provides, for the first time, comprehensive data on the personal contract plans (PCPs) market in Ireland. The data (Table A.19) was compiled following a survey of all lenders in the PCP market by the Central Bank statistics division to provide a reliable data source on the market as part of the Central Bank’s role as the main compiler of statistics on developments in the Irish economy and financial sector. The data shows significant year-on-year growth in the market since 2012, although the market stabilised somewhat in 2017.

The key findings are:

• At the end of 2017, Irish households owned 76,582 contracts related to PCP finance, equivalent to €1.4bn
• Outstanding contracts increased from just over 500 in 2012 to over 76,000 five years later. On average, 30,000 PCPs are now taken out every year, compared to 400 in 2012
• PCPs are the current driver of growth in bank-related lending to Irish households for non-mortgage purposes and have been the most prevalent source of car finance in the Irish market since July 2017. PCPs now account for 39% of car-related bank debt, up from 15% at the end of 2014
• Most PCPs are advanced by Irish resident banks, but 1 in 6 are extended by non-bank entities
• As with any type of lending, there are risks involved with PCPs. These relate to falling demand for new and used cars, increasing interest rates and negative equity scenarios
• Negative equity may be of particular concern in the Irish market, given the post-Brexit fall in the value of Sterling which has seen an increase in cheaper used car imports, potentially reducing the prices of used cars in the future and pushing existing PCP contracts towards negative equity.

The Economic Letter also outlines a number of issues which may require further consideration:

• The incentives offered to consumers by dealerships and banks
• The risks of increased consumer indebtedness
• The appropriateness of affordability and credit checks used for PCPs
• The level of exposure in the banking system to the car finance market.

The views presented in Economic Letters are those of the authors and do not necessarily represent the official views of the Central Bank of Ireland.

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