If you have tried shopping for a used car recently, you will know just how shocking the prices have become. Over the past three years, second-hand vehicles in the UK have surged in value, and it is no longer unusual to see a car that once seemed affordable cost significantly more than expected. In this guide, we break down why this has happened and what you can do if you are in the market.
How Much Have Prices Risen?
According to the AutoTrader Retail Price Index, the average used car sold for £14,155 in January 2021. By the same time in 2022, that figure had jumped to over £18,000. That represents a 32 per cent increase in just a year. Some owners who bought a car in 2020 or early 2021 could have sold it for a tidy profit.
While the explosive growth has slowed, prices never fully returned to pre-pandemic levels. Even as of May 2023, AutoTrader reported that the average used car price had risen by 2.8 per cent compared with the previous year. For nearly-new cars, around one in five now costs more than the equivalent brand-new model.
Why Are Used Cars So Expensive?
The short answer is simple: supply and demand.
The longer answer involves a web of economic and industry factors. In early 2021, the UK was recovering from the pandemic slump. People had disposable income, businesses were investing, and supply simply could not keep up.
New car production was hit hard by a global semiconductor shortage and Brexit-related tariffs, which limited the number of new vehicles entering the market. Meanwhile, more people than ever were looking for affordable second-hand cars. Remote work and shifting lifestyles meant families and businesses were reconsidering their transport needs, driving demand further.
10 Reasons Prices Have Soared
1. The increase in demand for vehicles from individuals was a result of the end of lockdowns and people’s desire to avoid public transport, as well as the increase in online shopping for vehicles.
2. The decrease of production of new vehicles due to the large decrease in the production of semiconductors led to a much smaller supply of new vehicles available and made buying a used vehicle much more feasible.
3. The Russia and Ukraine conflict that has led to a halt in the production of wiring harnesses from Ukraine affected how many European vehicle manufacturers were able to obtain such parts.
4. The cost to manufacture goods in the UK has increased significantly over the past year due to increases in the cost of electricity and manufacturing; therefore, vehicle prices are expected to increase further.
5. Inflation has put upward pressure on vehicle prices; although inflation is lower now than it was, it is still high enough to keep prices on an upward trend.
6. New tariffs imposed due to the Brexit deal have added additional costs to the manufacturers based in the UK that must source components across the English Channel.
7. Electronic vehicles (EVs) are starting to become more affordable as they gain popularity, but demand continues for traditional combustion engine vehicles (ICE).
8. There are two major seasonal buying periods for vehicles; summer is the busiest buying season, which means that there will be an increase in buyers and an increase in vehicle prices.
9. The used vehicle marketplace is dominated by only a few brands, which helps keep the average price of a used vehicle steady throughout the year.
10. A rise in interest rates has made it more difficult for potential buyers to finance new and used vehicles, limiting options for buyers.
Will Prices Come Down?
It’s doubtful used car prices will go back to what they were before the Pandemic anytime soon. Government scrappage schemes provided a temporary solution to lower-priced used cars; however, now the sales of regular fleet cars is the primary source of supplying low-priced used vehicles to the marketplace. Chinese manufacturers can build large quantities of vehicles at low margins but as long as the UK does not but these vehicles; continue to put upward pressure on pricing.
If you’ve got your eye on a car and want to know what it’s actually worth, a vehicle history check is a good place to start. It’ll give you the exact valuation broken down into private sale, part exchange, and trade price, so you’re not just guessing or relying on what the seller tells you.
Right now, it’s easy to see used cars are going to cost a lot of money and the direction that it is heading clearly indicates this will continue long after. If you are a buyer you should expect to exercise patience, do adequate research, and account for any financing options and any seasonal differences in price or availability when considering making any kind of a purchase.