Dylan Setterfield, head of forecast strategy at Cap HPI, on the latest trends for ICE and EV used cars and the outlook for the coming months.

Dylan Setterfield, head of forecast strategy at Cap HPI

At the start of the year, the used car market was expected to mirror the trends of January 2024, with a slight increase in values. However, the market was initially slow to gain momentum, with many industry professionals delaying their return to work after the holiday period and then further negative impact from a short spell of bad weather.

During the month, values at the 36-month/60,000-mile benchmark dropped as much as 2% before recovering, ending with an overall marginal decrease of -0.1%. Older vehicles, particularly those around ten years old, performed better, appreciating by up to 1.5%.

January 2025 started slowly, but market activity picked up after the first week, resulting in minimal overall depreciation. Electric vehicles continued to experience mixed demand, with some models stabilising while others faced renewed depreciation. Looking ahead, used car values are expected to strengthen into February, driven by strong retail demand and limited stock availability.

Fuel type variations were evident, with battery electric vehicles seeing a 1.1% decline, plug-in hybrids dropping 0.6%, and other fuel types experiencing relatively stable performance. While some sellers reported improved BEV sentiment, two-thirds of models continued to see declines, though a small proportion did register value increases. Dealer interest in BEVs is increasing as the profit potential of these vehicles becomes clearer.

Used car values are expected to rise by approximately 1.5% in February, supported by strong demand and slightly reduced supply. The market continues to benefit from the constrained supply of used cars, a direct consequence of reduced new car registrations during the pandemic.

The competition for high-quality stock remains strong, leading to price stability. Certain segments showed unexpected trends in January, notably the weakness of older Superminis and City Cars despite their affordability and ease of sale. The pattern is expected to correct itself in February, and these segments are likely to recover as demand remains high for budget-friendly vehicles.

The impending ban on new internal combustion engine vehicles from 2030 continues to shape the market. The government is consulting on how to meet this revised deadline, though any immediate impact on used values is unlikely. Unlike previous regulatory changes, the widely trailed change in the phase-out date of ICE cars and vans has not resulted in a significant short-term surge in consumer interest.

BEV supply and demand continue to evolve, with manufacturers facing increasing zero-emission vehicle targets. The 2025 mandate requires 28% of new vehicle registrations to be zero-emission, up from 22% in 2024. This target will likely drive further discounting of new BEVs, which in turn may suppress used values. However, consumer confidence in used BEVs is improving, with values showing signs of stabilisation after steep declines between 2022 and 2024.

The used BEV market remains complex, with wide variations in value retention by model. Many models have seen sharp declines in the past two years, with cumulative reductions at 36/60 exceeding 60% on average. Despite this, used BEV values have shown relative stability in recent months, with year-on-year deflation reducing to -12.06% at the 36/60 benchmark.

The worst of the depreciation appears to be over, though select models continue to experience downward pressure. Trade interest in used BEVs is improving, with more dealers recognising their profitability. Demand is particularly strong at the lower end of the market, where pricing is now highly competitive compared to ICE equivalents. However, manufacturer incentives and new car discounts continue to challenge the nearly-new used market, making it difficult for some models to recover value.

Consumer demand

Higher interest rates have constrained retail demand, making car finance less affordable for many buyers. However, recent improvements in lending terms, combined with an expected gradual reduction in interest rates, should support a more stable market.

Despite the UK avoiding a technical recession, economic growth remains sluggish, and consumer confidence is still fragile. Dealers are adjusting to these economic conditions by focusing on turnover rather than stock retention. Aged stock is being aggressively repriced, particularly in underperforming segments.

Supply chain constraints continue to impact vehicle availability, though semiconductor shortages have eased compared to previous years. Global trade risks, particularly the potential for increased tariffs on Chinese imports, add further uncertainty to the market

Looking ahead

The constrained supply of used vehicles is expected to provide price support through 2025. The impact of the pandemic-era new car registration shortfall—over 2.8 million fewer vehicles registered—will continue to be felt until 2027, when supply levels begin to normalise.

In the short term, BEV values will likely stabilise, with some models experiencing modest recoveries. Retail demand will remain influenced by interest rates, cost-of-living pressures, and shifting consumer preferences. Dealers will continue to adapt by refining pricing strategies and focusing on profitable segments.

Condition continues to be a key factor, with parts availability and refurbishment capacity continuing to be constrained while costs rise. Retail demand will remain limited in the short term due to the ongoing cost-of-living pressures and high interest rates, although some relief is expected as rates gradually decrease. Used car volumes are predicted to stay lower than historic levels, maintaining price stability for much of the year. While battery-electric models continue to be reassessed individually for short-term forecasts, some are now moving in line with standard market trends.

The UK has not entered a technical recession, but economic growth remains weak, and the final quarter of 2024 may see a slight contraction. However, the impact on used car values is expected to be minimal, as reduced consumer confidence often leads to shifts in purchasing patterns rather than outright reductions in demand. Buyers may opt for older, smaller, or higher-mileage vehicles instead of purchasing new cars, sustaining demand within the used market.

As 2025 progresses, the positive impact of reduced used car supply due to pandemic-related new car registration shortfalls will continue to support prices. This trend will gradually diminish by 2026 and return to normal by 2027, when used car volumes are expected to increase. The market remains in transition, influenced by regulatory changes, economic conditions, and shifting consumer preferences, but overall stability is likely in the coming months.