Used car prices are rising as the shortage of good quality second hand cars drops, industry data specialist CAP has revealed.
Despite the average value of three-year old cars remaining lower than 12 months ago, the value has risen drastically in the last two months.
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This is mainly because the scrappage scheme removed many used cars from the market place, meaning a shortage of supply. Dealers are now willing to offer more for a good quality used car as part of a trade in, pushing the average values up.
Mike Hind of CAP said: "The New Year will be a good time to trade in a high quality used car. Our research shows that dealers are currently paying very strong prices to keep their stock levels up and that is unlikely to change any time soon."
The winter weather is also having an effect, with the value of a used 4x4 nearly ten per cent higher than December 2010.
Luxury executive models such as the BMW 5 Series are also in demand, with values 2.6 per cent up on last year.
While other segments remain lower than average prices for 2009, several are closing the gap and are expected to continue to rise in value in early 2011.
These include small family cars such as then Ford Focus, whose average used value is now within five per cent of 2009 prices.
Overall, the used car market is four per cent down on last year, but this represents an improvement since September 2010, when the difference was closer to seven per cent.
According to CAP, “Despite growing economic austerity and poor consumer confidence, low supply into the used car market will mean the possibility of demand still outstripping supply in the case of good quality used cars."
The news could spark an increase in trade-ins for new cars in 2011, something which would be welcomed by the industry in the wake of the 2.5 per cent rise in VAT from January 2011.