New family cars in the upper-medium category are depreciating in value by up to 60% over the first three years, according to new research from the Alliance and Leicester bank. This is because ex-lease family vehicles are flooding the used car market.

Alliance and Leicester surveyed UK cars by size and form-factor category. The survey revealed that all cars except for those in the executive and luxury categories are best bought when three years old, to benefit from low residual values. For upper medium category family vehicles these are currently standing at 39.8% after three years, compared to 47.4% a year ago.

However, small cars and multi-purpose vehicles (MPVs and SUVs) are holding their value well. A Land Rover Freelander for example, was found to retain 80% of its value over three years, whilst small cars such as the Citroen Saxo and Fiat Seicento also lost comparatively little value over that period.

Lower medium category vehicles such as the Ford Focus are becoming more popular second hand buys and are consequentially retaining value well, as buyers look towards these vehicles in preference to other types. The bank recommended that vehicles in the executive and luxury categories, which also retain value comparatively well, should be bought new or at one year old in order to get best value.

The market forces behind these trends in the used car market include declining new car prices and second-hand market stagnation. These are due to increasing volumes of disposals from the leasing market. Disposals are mostly upper medium category family vehicles, which flood the market and consequently depress residual values. In addition, changing EU regulations are opening up the UK domestic markets to cheaper foreign used car imports, which are causing pressure for already troubled car residuals.

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