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New vehicle tax rules set to stimulate surge in purchase of zero and low-emission cars

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Here’s what you need to know

New vehicle tax rules coming into effect on 1 April are set to stimulate a surge of people buying low or zero-emission cars, according to new research from Sainsbury’s Bank. The supermarket bank’s latest Car Buying Index, which tracks consumers’ car purchase intentions, reveals that 21 per cent of UK adults plan to buy a car between 1 March and 1 September this year, with one in five (20 per cent) of these intending to buy a low or zero-emission car specifically to minimise the impact of changes in vehicle tax rules.

  • 21 per cent of UK adults plan to buy a car between 1 March and 1 September
  • One in five car buyers will opt for a low or zero-emission car specifically to minimise the impact of changes in vehicle tax rules
  • One in four will buy a car registered before 1 April to avoid the vehicle tax rule changes altogether

A further one in four (25 per cent) of those planning to buy a car over this six-month period said they will deliberately buy one registered before 1 April 2017 in order to avoid the new vehicle tax changes altogether.

Sainsbury’s Bank is warning car buyers to check the new rules carefully, as while some pure electric cars will remain eligible for no car tax, low-emission combustion-engined cars and hybrids will become more expensive to tax from 1 April than they are now – though they will still be cheaper than higher-emission cars as long as their list price is under £40,000.

Overall, the number of adults who say they intend to buy a car is down two percentage points on the previous six-month period (from 23 per cent), though the average amount that car buyers intend to spend on their purchase has increased by 22 per cent from £11,268 in the previous six-month period to £13,740.

The new tax rules

The new rules, which will only affect vehicles registered with the DVLA from 1 April, will calculate vehicle tax for the first year based on CO2 emissions. After the first year, the amount of tax that needs to be paid depends on the type of vehicle, with petrol or diesel vehicles charged £140 a year compared to £130 for alternative fuel vehicles and no tax to be paid for vehicles with zero CO2 emissions.

After the first year, vehicles with a list price of more than £40,000 will be charged a rate based on the fuel the vehicle uses and an additional rate of £310 a year for the next 5 years.

The survey suggests that producers of low-emission cars will benefit considerably from the changes. As well as the 20 per cent of car buyers who plan to choose a low or zero-emission car to minimise the impact of changes to vehicle tax, 11 per cent say they intend to buy one for other reasons, such as environmental concerns.

In total, almost one in three car buyers over the next six months (29 per cent) plans to select a low or zero-emission vehicle. Figures from the Society of Motor Manufacturers and Traders revealed that new car registrations of alternatively-fuelled vehicles rose by 48.9 per cent in February compared to the same month last year.

However, over a quarter of those car buyers surveyed (27 per cent) said they weren’t even aware of the incoming vehicle tax changes.

Overall, of those looking to buy a car, half (50 per cent) plan to buy a brand new one compared to 46 per cent seeking a second-hand one. Other than the new vehicle tax rules, factors influencing people’s decision to buy a car in this period include feeling generally more confident about their finances (16 per cent); an increase in disposable income (12 per cent); family changes such as their family growing (9 per cent); and because they want to drive a brand new 2017 number plate (3 per cent).

Financing choices

Over half (57 per cent) of those intending to buy a car will use some form of loan, with younger adults in the 18-34 age group much more likely to use a loan (70 per cent) than any other age group.

Hire purchase is the most popular intended finance method, with 13 per cent of buyers planning to use it. Another 12 per cent intend to use a personal contract purchase; 11 per cent a credit card; and 9 per cent will lease their car. Personal loans will be taken out by 7 per cent of car buyers, and 3% say they will extend their mortgage or use equity release to free up the funds.

Those who plan to use some form of loan expect that, on average, 49 per cent of the cost of their car will be financed by it.

In 2016, more than one in three (37 per cent) of the personal loans provided by Sainsbury’s Bank were for car purchases, with an average value of £9,726.

Simon Ranson, Head of Banking at Sainsbury’s Bank said:  

“Many car buyers are looking for finance to help them buy a vehicle and now is a good time with some very low interest rates available.  Our message to car buyers is to consider all payment options to ensure they make a decision that best suits their financial situation.

“The new vehicle tax rules will continue to make zero-emission cars cost-effective, but car buyers should check the rules carefully before they decide on their purchase. While tax will still be calculated based on CO2 emissions, only some zero-emission cars will be in the zero-tax bracket, and the premium car supplement for vehicles with a list price of over £40,000 will add a financial burden whatever the emissions level of the car.”

Sainsbury’s Bank is offering customers a typical rate of 2.9 per cent APR representative on loans between £7,500 and £15,000 taken over one to five years.  Nectar customers taking out a loan over one to three years could get an even lower rate. Sainsbury’s Bank has a loan calculator  to help customers gauge what their monthly repayments and total repayable amount would be with different Sainsbury’s Bank loans.

Sainsbury’s Bank offers the following tips for those looking to buy a car:

If you are looking for a new car, it will almost certainly be worth trying to buy one registered before 1 April 2017 unless you are in the market for a zero-emission car

Check the new vehicle tax rules carefully before you buy while some pure electric cars will remain eligible for no tax, this is not the case with low-emission hybrids or combustion-engined cars, though tax will be partially calculated based on the level of CO2 emissions. You can check the new tax rules here

Know the market: The What Car? Target Price for each make and model is a good guideline

When a new model or facelifted version of a car is launched, or is imminent, the ‘old-look’ model can be bought at a greater discount.

Larger discounts are often available before the introduction of new registration plates.

If asking for a drop-in price is a daunting prospect, try getting additional extras thrown in with the deal, such as a SatNav, Bluetooth or metallic paint.

Make sure you’re fully decided on the car you want, and on your budget. Don’t be persuaded into spending more than you can afford and if you don’t like the deal, walk away.

Shop around. Visit more than one dealer to compare prices and test their willingness to do you a deal. Let them know you’re considering other options.

Never respond too quickly to an offer/deal. Pause before answering or say you’ll think about it to let the dealer know that you’re not desperate.




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