Published On: Mon, Jan 19th, 2015

How Is the UK’s Booming New Car Market Effecting Used Sales?

The surge in UK car sales last year caught even the Society of Motor Manufacturers by surprise, as it raised its 2014 sales growth forecast from 6% to 8%. Even that, though, has been surpassed as the latest figures shown a 10% rise in the market. Around 2.48m cars were sold in 2014 making it the strongest year in a decade, and this is no surprise as sales have been up every month for the last 34 months.

UK’s Booming New Car Market

How Is This Happening?

While the UK economy is growing around 2.6% a year, industry experts are pointing to the growing popularity of PCP finance schemes for the rise in sales. Under a PCP plan, drivers pay an initial deposit and then a low, fixed monthly payment over a short term – usually around three years. After this period is over, the driver then has the option to make another more substantial payment and take full ownership of the vehicle or trade in the residual value of the car in as a deposit on a new vehicle.

Is This a Good Time to Buy a Used Car?

What many industry insiders are predicting is that the majority of buyers will look to cash in and make a deposit on another new vehicle. Online retailers that specialise in the used market like exchangeandmart.co.uk could see a surge of cars hitting the market, pushing the prices down. If this results in the lenders losing profit on their collateral, it could see them forced to raise the monthly rates of PCP plans in the future, or even switch over to more traditional HP deals – where you pay a higher monthly fee but own the vehicle at the end of the contract.

Another reason that lenders may find the market can’t support current PCP rates is increasing chance of a higher interest rate. Buyers have benefited from the fact the UK has operated under a 0.5% rate since March 2009. However, with the economy improving and unemployment rates decreasing, a change seems forthcoming.

This means that those looking to wait and see how the market develops risk the chance of securing the best price on a used car. PCP plans may become less popular over the next few years as lenders find that the market can’t support it sufficiently, causing the used market’s price to normalise.