(Commonwealth_Europe) A recent ruling by the UK Supreme Court could be a major turning point for the country’s car finance industry, both in terms of its financial stability and its future ownership landscape.
Earlier this month, the court overturned much of a previous lower court decision regarding the sale of car loans to consumers, particularly those involving so-called “discretionary commission arrangements.” These are deals where brokers could adjust the interest rate offered to customers, sometimes without proper disclosure. The ruling is widely expected to reduce the overall compensation bill that car finance companies will have to pay, which was initially feared to be around £30 billion. Based on early estimates by the UK financial regulator, experts now suggest that the final cost could range between £9 billion and £18 billion.
The market has been affected by this reduced exposure, especially private equity firms and other owners who have been holding onto motor finance businesses longer than anticipated, awaiting clarity on the legal and financial implications. For the past 18 months, many firms have been in a holding pattern, uncertain about whether to sell, merge, or hold their investments. Now, with more certainty in sight, some are preparing to re-enter the dealmaking arena.
Hyder Jumabhoy, a partner at law firm White & Case, believes the ruling has provided just enough clarity for owners to begin seriously preparing their businesses for sale. “I think it’s the real activity that will start now,” he said, noting that while the final details of the compensation scheme are still being developed, many firms now have a roadmap they can work with.
Other corporate advisers agree, at least in part. While three more echoed Jumabhoy’s optimism, another three were more cautious, suggesting that real growth in mergers and acquisitions might not fully take off until 2026, once the redress scheme is finalised and all costs are clearly understood.
In the meantime, some deals are already beginning to surface. Reuters has learnt that Cabot Square Capital, a London-based private equity firm, has enlisted BNP Paribas to handle the sale of Blue Motor Finance. The company, which reported an £8.5 million loss in 2023 on £53 million in revenue, is seen as a candidate for exit after a longer-than-typical hold.
Similarly, Starline Motor Finance, backed by U.S. hedge fund The Baupost Group, may also hit the market soon. Starline posted a £4.25 million loss last year, despite bringing in over £100 million in income. Like Blue Motor, it has stayed in its current owner’s portfolio for longer than expected—largely due to uncertainty in the regulatory environment rather than business fundamentals.
“There’s a series of highly attractive assets which have sat in private equity portfolios for longer than most would have expected,” said Elliot Reader, a director at Houlihan Lokey. “Now is a period of time where there is some more certainty, and these assets can start to come to market.”
Still, caution remains. As long as the total redress cost remains undefined, some potential buyers—especially larger institutions—may hold off. Antony Walsh, partner at law firm Eversheds Sutherland, acknowledged the potential for deals but warned, “I’d expect any meaningful movement to emerge throughout 2026.”
Despite these uncertainties, the broader motor finance market continues to grow. According to the Finance & Leasing Association, 80% of all new cars sold to UK consumers in the year up to April were financed through loans. In the first half of 2025 alone, new business in the sector grew 6%, pushing the total value of outstanding point-of-sale car finance contracts to around £86 billion.
This growth, combined with clearer legal boundaries, could attract fresh interest, not just from other private equity firms, but also from larger banks and credit funds looking to expand their portfolios.
Analysts at Moody’s have pointed out that the recent Supreme Court decision could now shift focus to specialist lenders like Aldermore and Close Brothers. The next phase of consolidation could shape these firms’ futures, given their significant exposure to motor finance.
FirstRand, the South African bank that owns Aldermore, has made it clear that it has no plans to sell. Analysts and investors continue to closely monitor Close Brothers, whose shares have surged by about 25% since the court ruling.
But as RBC analyst Benjamin Toms noted, some CFOs remain wary: “They think Close Brothers is a good business, but they would not touch it with a barge pole until motor finance is well and truly dusted.”
That sentiment underscores the mood across the industry. There’s a sense that the fog is lifting, but there are still a lot of roads left before the sector reaches full visibility.
