Holidays in the sun are being prioritised above car purchases ahead of a tough winter in which the UK is expected to see the UK slide into recession amid ongoing inflation.
In his monthly used car market update with AM, Cap HPI's director of valuations Derren Martin said more affordable cars are being hit hardest as the cost-of-living crisis continues to deepen, suggesting that an uplift in supply could impact values later in the year.
Martin said: “Post-COVID the used car sector saw prices soar by 30% thanks to captive, accidental savers spending money on a new car after lockdown. Since then, that pricing has remained buoyant due to supply issues.
“Now, money is getting tighter for households and I think what we’re seeing is some of the hardest hit putting off a car purchase, while others are choosing to spend what they have on getting away on holiday ahead of what could be a very tough winter.”
Martin said that, while the August market outlook was so stable it was verging on “dull”, older cars were performing weakest, with 10-year-old cars down by 1.7% month to date, which is the equivalent to £65.
At three years, values are down by 0.3% – equivalent to £40 – month-to-date, while six-month-old cars are 0.1% up.
“It’s a bit dull, but dealers should be reassured. There’s still plenty of stability in the market, despite all that’s going on”, Martin said.
Earlier this month the Bank of England warned that the UK was set to slip into a lengthy recession this winter as it raised interest rates to 1.75% as rising fuel and energy costs continued to drive inflation and stymie economic growth.
Inflation could top 13% as the energy price cap increases to over £4,200, it has been suggested.
Martin suggested that an influx of new car supply into the market – and the knock-on influx of vehicles into the used car market – could yet combine with faltering consumer confidence to trigger a decline in used car values later in the year.
He said: “There will be some realignment. The market cannot continue to be as flat as it has been. When supply returns to fleet and leasing there will be a shift.
“That said, it won’t be a drop of 30%. We don’t foresee significant decline.”
Last week the Society of Motor Manufacturers and Traders (SMMT) revealed that used car sales shrank by nearly 20% in the UK during Q2, despite a 57.1% increase in used electric vehicle (EV) sales over the period.
The latest SMMT figures show that there were 407,820 fewer transactions to a total of 1,759,684 cars changing hands.