Used car prices 2022: Why are they going up around the UK and when will they drop?

As second-hand car values continue to rise we look at the reasons behind the increase and ask the experts when prices might start to fall again

Used car prices in the UK are continuing to rise, threatening to price some motorists off the road.

Combined with rising fuel costs and a hike in car tax, the constant increase in second-hand values is making motoring ever more expensive.

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The latest figures from Auto Trader show that May was the 26th consecutive month of price growth, with the average used car price now £3,400 more than it was a year ago.

The data shows that that the average increase across all makes and models has been more than 28% since May 2021, taking the average second-hand car price to £17,385.

Dealers saw a surge in demand that coincided with the start of production problems

However, in some cases the year-on-year increase has been even more dramatic, with the Suzuki SX-4 soaring by 80% compared with 12 months ago.

Prices of family-friendly models such as the Seat Alhambra, Ford S-Max, Renault Scenic and Ford Galaxy have also jumped between 50% and 60% over the last 12 months, piling additional pressure on motorists already facing record-breaking fuel prices and increases in tax and insurance bills.

And whether you’re looking at nearly new cars or older models at the cheaper end of the market, sellers are asking more than ever.

Why are used car prices so high?

A perfect storm of events over the last two years has pushed up prices far beyond what would normally be expected, with much of the cause traced back to problems in the new car market.

The end of lockdown coincided with a global shortage of vital electronic components. These have left the new car market struggling to meet customer demand, which has in turn driven up demand and prices in the second-hand sector.

James Fairclough, CEO of used car specialists AA Cars, says that demand which built up while dealers were forced to close during the first lockdown led to a surge on the market from mid-2020 onwards.

As dealers gradually reopened customers flooded back and demand for new and used car soared while factories struggled to get back to full production capacity.

Prices have gone up across all types and ages of second-hand cars

This demand was amplified as thousands of people opted to drive rather than return to public transport amid continuing fears of Covid infection.

At the same time, car makers were affected by the worldwide shortage of electrical semiconductors, which are vital to many operating functions of modern vehicles. This has seen manufacturers struggle to produce new cars, with some firms cutting production shifts at factories or removing options from vehicles to cope with the shortage. Ford recently announced it was pausing orders on its best-selling Fiesta due to component issues.

Mr Fairclough explains: “With the number of cars rolling off production lines stagnating or falling, anyone wanting to buy new often faced a long wait; and as a result much of this demand shifted to the secondhand market instead.”

This surge in demand for used cars has inevitably pushed up asking prices and while much of the demand is for relatively new models, it has had a knock-on effect across the entire market.

Mr Fairclough told National World: “Our data shows that some of the most in-demand models are appreciating even as they sit on driveways. For example, a five-year-old Mini Hatch ended up costing 15% more in 2021 than a three-year-old one did in 2019.

“The most popular car of all, the Ford Fiesta, saw the average price of three to five-year-old examples jump by nearly a third (31%) to £9,770 between 2019 and 2021.”

Figures from Auto Trader show that one in five nearly-new models, including the Land Rover Defender, Dacia Sandero and Volvo XC40 are even selling for more than their original list prices as customers battle to find the car they want.

When will used car prices drop?

Auto Trader’s data shows that in recent months price increases have softened - May’s 28.4% year-on-year change is down on April’s record 32.2%. However, the experts are agreed that there is no immediate end in sight to the current artificially high prices.

Richard Walker, Auto Trader’s director of data and insights, said: “It is important not to jump to rash conclusions about the health of the market, despite the softening in May. If we compare it with a boom in car-buying after the end of the third lockdown, it is unsurprising that the market might seem weaker. But judged by site visits to Auto Trader, demand is still solid and looks likely to support pricing for some time to come.

“This is a market which is only going to gradually return to normal.”

The factors which have driven the recent surge in prices continue to influence the market and the impact of other global events, including the war in Ukraine may also keep used prices artificially high.

Many car makers are still warning of long waiting lists for new cars and Volkswagen’s chief financial officer Arno Antlitz has admitted the chip shortage could affect the industry until 2024. That will mean buyers will either face a long wait for a brand-new car or have to opt for a nearly-new model instead.

A secondary effect of the chip shortage is on the supply of second-hand cars. With fewer new models being sold, there are fewer cars being traded in and making their way onto the used car market.

James Fairclough explains: “The used market usually receives a steady flow of supply of nearly-new cars that have been driven on finance, and then returned.

“But with fewer new cars being bought or financed during the pandemic, the supply of one to two-year old cars now coming to market could start to decline, and this is likely to push up prices in the nearly-new sector of the market.”

The war in Ukraine could also have an indirect effect on the used market, once again due to its impact on new car production where a drop in the supply of parts, including steel and wiring looms potentially creates further problems for factories.

Mr Walker believes such supply issues will last for many more months. He says: “Making predictions in the current geopolitical climate is even more difficult than usual, but we expect the supply issues to last until the end of the year, which along with the current healthy levels of consumer appetite, will keep used vehicle prices strong for some time to come.”

According to Mr Fairclough, the growing cost of living crisis could also play a role in keeping used prices high.

He notes: “With inflation eating into people’s disposable income, many drivers will now be considering buying a lower priced used car because that is all they can afford, or because they want a car that will last a few years while they wait for the economy to improve. High demand for these cheaper models could drive up prices.”

The BMW 8 Series is among a handful of cars whose used values fell in May 2022

That’s not to say it’s bad news across the board, not all models are as in demand and Auto Trader figures show some, including models from Mini, Land Rover and BMW have seen small reductions in value. Its most recent data also shows that in May prices for cars over five years old fell for the first time in two years as the post-lockdown demand for alternatives to public transport falls away.

Mr Fairclough adds: “Many cars have not seen the same demand pressures, and those in plentiful supply have seen much more modest price rises.

“Anyone in the market for a used car should do their research beforehand, and consider comparing prices outside their local area too - as there can be great variation in prices around the UK depending on the availability of particular models.”