Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

THE RISING COST OF LIVING has been getting a lot of press thanks to energy bills, hotel stays, clothing, petrol, household goods and raw materials all becoming more expensive. And with inflation hitting a 10-year high of 5.1%1 in November 2021, we’re really beginning to feel the effect on our pockets.

It’s no wonder at times like this that people are looking at ways to make their money go further. But if you were thinking of buying a second-hand car to try and save some pennies, you may have to think again.

Average used car prices in 2021 are up 28.6% from last year

According to Auto Trader, used car prices have seen five whole years of growth in just six months. And with buyers paying almost 29% more for the average car than they would have done in 2020, it means in real money they’d now pay £17,366 this year for the same car they’d have paid £13,504 for last year.

What cars are proving to be popular?

It’ll probably come as no surprise that your Ferraris and Bentleys haven’t made it to the top of the used car wish list. Instead, it’s been the slightly less glamorous - but altogether more practical - family-sized MPVs that have claimed the winning spots. Brands like the Seat Alhambra, Renault Grand Scenic and Ford S-Max are all doing a roaring trade.

Is this a trend that’s likely to last?

All signs point to this not being a passing fad. One reason could well be down to the fact that people are trying to stretch their budgets as they continue to face uncertain times. But the other reason?  Well, there’s currently a semiconductor shortage 2 that according to some automotive industry experts, isn’t one that will end anytime soon. In fact, one expert even goes as far as to say that this disruption could last into 2023. This will limit new car production, which will put added pressure on the demand for second-hand vehicles. And we all know what happens to the price of things when demand outstrips supply…

Richard Walker, director of data and insights at Auto Trader, said: 'Although week-on-week price movements may continue to soften over the coming weeks, average prices remain nearly 30 per cent above what they were last year.

'Looking further ahead, the new and used car supply constraints will last for much of next year, and with the economy set to grow, we can expect to see the very robust levels of consumer demand continue.

'Simple economics therefore point to a continuation of very strong price growth well into 2022.'

So, all in all, it’s great news for the second-hand car sellers, but not so good for anyone looking for a reasonably priced used car.  But if the thought of inflated used car prices is putting you off, you could always think about whether or not you should buy an electric car.

1 Office for National Statistics
2 FleetNews - 4.10.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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