Why Are Used Car Prices Going Up?

In recent weeks, we’ve seen something of a buzz in the used car trade, with prices going up following a quiet few months under lockdown. Despite the depreciation we’ve become used to, we are seeing used cars going up in value week-on-week once they’ve been bought, and it hasn’t gone unnoticed.  

Rumours of used cars on driveways going up thousands of pounds in value are buzzing round the internet. Industry insiders have seen a sudden acceleration in used car prices from May 2021 onwards. But why exactly are used car prices going up? Are they going to keep going up? For many drivers, the main question will be ‘can I afford to buy a car?’ Read on as we answer all of these questions and more.  

How much are used car prices going up? 

For the first time since the economic recovery started in 2009, used car dealers are seeing staggering price increases in stock. Reports in Car Dealer Magazine and Auto Express, reveal used car prices rose by 6.5% in May 2021 alone, following a 2% rise in April. 

“Average price increases are around 6% per month. We’ve not seen anything like it. They’re likely to be up by 6.5% in June, but they usually drop by 0.5%,” according to Derrin Martin of Cap HPI, a firm used by motor trade professionals for extensive dataset and their unique understanding of the automotive market.  

He continues, “Used car prices are going up 8% over 2 months, whereas usually prices would drop by 0.5% per month. Used cars are now an investment, but we don’t know how long this unforeseen change of circumstances will last. It’s difficult to forecast what will happen next.”  

Why are used car prices so high? 

Used car prices are so high, partly because of lockdown. There is now pent-up demand because forecourts were closed for months and customers had limited civil freedoms to go out during the most recent lockdown of 2021. There was a similar surge in used car sales in the summer of 2020 following that lockdown.  

Supply and demand economics 

Not only that, but supply levels are low because of the latest lockdown, so for the first time, supply is less than the demand. This makes pricing more competitive because normally supply outweighs demand. As there are fewer cars to choose from, this makes used cars more desirable and allows vendors to increase their asking price. It’s supply and demand economics.  

There were fewer new car registrations in March and April, which is likely having a knock-on effect for used car sales, as more people seek cheaper alternatives. Customers who would have bought a new car may be looking to the used car market instead. 

What is the semiconductor issue? 

At the same time, there is a semiconductor issue affecting the car industry. Modern cars use semiconductor chips for displays and safety systems. Leading car makers have had to scale back production because of a global lack of supply of these semiconductor chips, meaning there are fewer new cars on the market, driving up the demand for used cars.  

Semiconductors are in unusually short supply because plants were closed during lockdown. Derrin Martin believes the semiconductor issue will hit harder in Q3, and dealers may switch buyers to alternative models.  

Should I buy a car now?  

With cars going up by hundreds or even thousands of pounds sat on driveways or forecourts, the main question for most drivers is whether they should act now and buy a car today – or stick with their existing car until it all blows over. 

Well, the UK PM announced this week that the 21 June end of lockdown is to be delayed four weeks because of the increase in the Delta variant of coronavirus. There are still millions of people in the UK alone without the vaccination. Put simply, it looks like lockdown measures are here to stay. So, what does that mean for the value of used cars? 

If you’re thinking “should I buy a car now?” the answer is a bit unclear. Because we truly don’t know how much longer used car prices are going to go up, you could buy now before the price goes up further. If the used car price trend continues over June to July, we could see another 6.5% increase month on month in used car value.  

We cannot forecast how long the lockdown will continue, nor can we forecast how long prices will continue to increase. We are seeing used car prices increase week-one-week, so if you’re looking for a good value deal, it could be best to buy now. 

Buying a car now 

If you want to buy a used car before prices continue to rise, My Car Credit can help. We compare deals from our large panel of trusted lenders to find you affordable car finance, which helps you spread the cost of a new or used car.  

Use our car finance calculator to see how much you can borrow or get in touch with our team for more information.