Will used car prices drop in 2023? Why second-hand prices have risen so much in UK and when they might fall

The cost of used cars has shot up in the last two years (Composite: NationalWorld/Shutterstock)The cost of used cars has shot up in the last two years (Composite: NationalWorld/Shutterstock)
The cost of used cars has shot up in the last two years (Composite: NationalWorld/Shutterstock) | (Composite: NationalWorld/Shutterstock)

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After two years of soaring secondhand prices we look what has caused the shock increase and ask the experts when we might see prices falling

As drivers continue to struggle with the cost of motoring, the rocketing price of used cars has made it even more expensive to stay mobile.

After the pandemic, average asking prices soared almost £4,000 in a single year, according to Auto Trader, and second-hand bargains have all but disappeared as drivers battle the cost of living crisis.

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In January 2021 the average used car price on Auto Trader was £14,155. By January 2022 that had soared to £18,067 and in April 2022 year-on-year price growth was at 32%, according to the marketplace’s retail price index. However, since then the price growth has slowed and in January 2023, the average price on Auto Trader was £18,119, a year-on-year increase of 2.7%.

Auto Trader even recorded a small dip in prices between October and December, and AA cars reported prices virtually grinding to a halt at the end of 2022.

More recent figures from Auto Trader and auctioneer BCA have shown a return to price growth but the changes have been far smaller than in 2021/22, offering some hope to motorists that the chaos of the last two years is coming to an end and prices could be softening.

Why are used car prices so high?

Exceptional circumstances throughout 2021 and 2022 are thought to be behind last year’s record price rises and are still having an impact on prices in early 2023.

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An end to most Covid-related restrictions opened up retail again and unlocked a wave of pent-up demand for cars. However, this coincided with major manufacturing problems for car makers caused by the global semiconductor shortage.

Most car makers struggled to secure enough of the vital components and, combined with ongoing Covid restrictions in some territories, car production was badly hit. In some cases, manufacturers had to alter specifications at short notice, while some stopped taking orders for certain models.

This led to a shortage of supply in the new car market which in turn meant many buyers who would normally buy brand new turned to the used car market. While much of this transferred demand was for nearly new models, it had a knock-on impact across the entire used car market, swelling demand and driving up prices.

Parts supply and workforce problems have severely affected new car production in recent years, hurting the used car market (Photo by Leon Neal/Getty Images)Parts supply and workforce problems have severely affected new car production in recent years, hurting the used car market (Photo by Leon Neal/Getty Images)
Parts supply and workforce problems have severely affected new car production in recent years, hurting the used car market (Photo by Leon Neal/Getty Images) | Getty Images

When will used car prices drop?

There are positive signs that new car production is returning to normal levels which should, in time, soften demand on the used market. The latest data from the SMMT shows a 26% increase in new car registrations in February - the seventh consecutive month of growth in new car sales.

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However, Mark Oakley, director of AA Cars, warns that after two years of under-supply the impact of this improvement won’t come quickly. He said: “Prices are unlikely to fall significantly as there is still a shortage of used cars on the market. This is because fewer nearly-new vehicles are coming onto forecourts as a result of the slowdown in global car production since 2020.”

That’s a view echoed by Auto Trader’s director of data and insights, Richard Walker, who says that the delicate balance between supply and demand is likely to maintain prices for the foreseeable future. He commented: "The strong level of demand in the market, coupled with the ongoing shortfall in stock fuelled by the dearth in new car supply, is keeping second-hand car prices stable. And with no indication of these dynamics shifting anytime soon, we remain confident for the months ahead.”

Karen Hilton, CEO, of marketplace heycar UK said that after two “rollercoaster” years the market was steadying but buyers faced strong used prices for the foreseeable future. She told NationalWorld: “This year, values are proving to be stable, a trend that we expect to last throughout 2023. With a lack of good one-to-three-year-old used cars in the market - caused by extraordinarily low new car sales in 2020, 2021 and 2022, prices will remain strong and there’s unlikely to be any dramatic falls - or bargains for consumers.”

The cost of living crisis could also still have an impact on used prices, according to Oakley, who noted that drivers who previously bought brand new may look to save money by buying used.

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Stuart Pearson, COO of BCA auctioneers, also believes that a softening of used car prices is unlikely in the immediate future as consumer demand remains strong. The auction service reported buyer appetite “exceeding expectations” and pushing sale prices up by 1.6% in January while new car supply remains “well behind” pre-pandemic levels.

Pearson commented: “It is fair to say that after the challenges of the last quarter, the unexpected lift to the January market was very welcome. Whilst new cars are becoming more readily available, there is every expectation that used car values will remain resilient for the next few months.”

Are used EV prices dropping?

While average used prices have remained strong, there have been reports of a downturn in the price of second-hand electric cars. Auto Trader figures for January show five months of small but sustained decline in EV values, dropping by just under 1% year-on-year. It blames a rapid shift in the supply and demand balance for this. According to its data, used EVs were down from 6% of all advert views in June 2022, to 4% in January. Over the same period, the proportion of adverts that were for EVs, increased from 2% to over 6%.

However, there are stark variations between different models. While used examples of expensive models like the Tesla Model 3 and Audi e-tron have slipped in value between 2.6% and 3.1%, some more mainstream cars such as the Peugeot e-2008 and Citroen e-c4 have enjoyed price growth of 11% and 7% respectively.

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Walker added: “As our data highlights, the market is incredibly nuanced, and so a broad-brush rarely reflects the true picture. Retailers need to resist thinking all EV’s are in decline, as the data simply doesn’t support that. Those models that are seeing levels of supply grow at a faster rate than demand are experiencing a price adjustment, but there’s plenty of models where demand is as strong, if not stronger than supply.”

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