Advantage Finance
Advantage has continued to lend selectively as it adjusts to new collections practices
and strikes an appropriate balance between risk and return on capital. At the end
of the period, net receivables were c £283m, down from £295m at 10 December and £326m
at H125. This was below the £290m reflected in our forecasts. In H125, average transactions
per month were c 1,450 (compared with an average c 1,800 per month in the preceding
three years) but, having dipped sharply in H225, had recovered somewhat to over 900
in January. We expect a further recovery in transactions although, in the near-term,
the natural run-off of existing loans will likely result in a lower receivables balance
in the first half of FY26, returning to growth in H2. We, nonetheless, expect end-FY26
receivables to be lower than previously forecast.
We also anticipate a steady, but material, improvement in collections going forward.
The FY25 collection rate was 85% (FY24: 92%), with a modest improvement to 87% through
January. While the temporary restrictions on collections agreed with the FCA have
been lifted, there is a significant backlog of non-paying customers and vehicle recoveries
to be worked through, for which Advantage has introduced new processes and procedures.
We also suspect the significant media coverage of industry regulatory issues and the
Appeal Court judgement, combined the vigorous activities of claims management companies,
may be having some impact on some borrowers and their propensity for repayment.
Regulatory developments
As previously reported on, with enhancements to Advantage’s lending and collections
practices agreed with the FCA and implemented, the review process is drawing to a
close. However, pending completion, there is no new guidance from the company regarding
potential remediation for any adverse impact on customers who may be affected by legacy
practice. This has previously been treated as a contingent liability, too uncertain
to be reliably assessed. We do not expect a material impact, which in any case would
be one-off in nature.
In December, the Supreme Court agreed to hear an appeal against the October 2024 Court
of Appeal decision regarding car finance commission payments. Importantly, this is
a separate issue from that of discretionary commission, to which S&U is not exposed.
The two matters are sometimes erroneously conflated. At this stage, it is impossible
to estimate the potential impact on S&U should the Court of Appeal ruling be upheld
by the Supreme Court, but it has the potential to be very material.
More positively, the calls for a more pragmatic, lighter touch, more growth-friendly
approach to financial services regulation have continued to increase, including from
the prime minister, the chancellor in her Mansion House speech in November and from
industry practitioners. During the past two months, UK Finance, the Finance and Leasing
Association and S&U have all made presentations to government and to parliament on
the subject of ensuring a regulatory framework that is both robust and predictable.
Aspen Bridging
Profit growth at Aspen is being driven by much higher lending and receivables balances,
while credit quality remains strong, and the blended yield on lending has been above
the level budgeted by management. The number of transactions increased by 16% in FY25,
to 190, and net receivables grew c 17%, to £152m, a new record for the business. Collections
were up 25% to £157m. S&U expects Aspen’s reported profits to be up by c 50% for the
year.
Aspen enters FY26 with a strong pipeline of bridging finance for smaller developers
and builders and market conditions continue to be robust. Residential property transactions
remain healthy, with a positive impact from the changes in stamp duty that come into
effect on 1 April, and house price indices have continued to climb. Interest rates
cuts should continue to support the residential property market, set against positive
long-term structural drivers.