RESIDUAL values of cars in Britain are lower than anywhere in Europe because manufacturers are flooding the retail market with new cars, according to industry analysts Glass's Information Services.

The UK supply of new cars is reaching saturation point and, as the only major right-hand-drive market, there is nowhere else for thousands of cars to go.

Glass's editor Chris Smith said: 'While the domestic market still has an appetite for new products, this volume can be accommodated, but there may well come a point at which this appetite is satisfied, and there's evidence such a point may be close.

'The UK now has the poorest residual values in Europe – a typical two-year-old car in the UK is worth 59% of the original cost new. In Germany and Spain the figure is 69% and in France 73%. Since the quality of cars is not in doubt, and the market severely limited because of right-hand-drive, the likely cause of this depreciation is over-supply.'

Because of over-supply to the retail market, prices of new cars are being forced down, with traditional second-hand buyers being attracted to buy new cars rather than used. The result of this is pressure on two, three and four-year-old fleet cars.

Adrian Rushmore, managing editor at Glass's, said the number of used cars coming into the market were holding up residuals.

He said: 'The fact that prices have not fallen further is due to the general supply that has remained adequate rather than plentiful. This is due to a combination of factors, including a slightly reduced volume of ex-rental cars, a shortage of good quality part- exchanges from the motoring public and contract extensions on leased cars that have delayed their appearance in the market.'

Glass's reports that despite a fall of 5 to 7% in the market last year, there has been a slight recovery in recent months.