AVERAGE used car values have fallen by more than 5% over the past three months, according to a new report.

The latest quarterly Glass's Car Market Index report shows the trade value of an average three-year-old vehicle – a Y-plate car at 36,000 miles – is now £7,423, a drop of 5.2% or £440 since March.

Glass's predicts further drops in value because of higher interest rates, higher prices and a degree of uncertainty about the future of the housing market.

However, comparing the second quarter of 2004 with the same period last year, average three-year-old car values currently remain higher, although the gap between 2004 and 2003 has narrowed from £540 to £425.

While list prices have increased by an average of 1.6% in the last 12 months, Glass's says further rises are inevitable as manufacturers add Euro IV compliant diesel engines.

However, Alan Cole, editorial consultant at Glass's, claims the rises will have little effect on transaction prices. He said: 'The requirement to maintain or enhance market share has led to a proliferation of ever-more competitive incentives.'

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