STRONG levels of demand and a well-matched balance of supply have led to a steady increase in the residual values of many used cars over the past 12 months.

Analysis by Glass’s Information Services highlights improvements in the prices being achieved by the average one, two and three-year-old vehicle in the UK.

According to Glass’s, three-year-old cars have been the highlight of the marketplace over the past year, with the average retained value increasing from 44.7 per cent in March 2003, to 49.9 per cent in March 2004.

Glass’s predicts the market as a whole is unlikely to see similar levels of growth over the coming year.

Car editor at Glass’s, Johnathan Brown, said: “Overall, we expect values to drift back gently, with the inherent strength in the market bolstering values but lacking the impetus to drive further increases. By the end of the year we will also see used car supplies increasing - the inevitable legacy of several years’ record new car sales - and this could result in further residual value drift.”

The sectors that are driving the uplift in values:

• The large MPV sector over the past 12 months has shown notable improvement. One-year-old examples have increased from 67.6 per cent retained value to 71.8 per cent, and with three-year-old examples growing from 47.3 per cent to 52.5 per cent.

• The Sports Utility Vehicle (SUV) sector has also shown improved residuals, but predominantly for three-year-old vehicles.

• Vehicles in the large 4x4 sector show incredible resistance to depreciation, with petrol versions at an enormous 81.3 per cent average retained value after one year and 55.5 per cent after three years.