Used cars in Ireland are now holding their value better than any time in the recent past, DoneDeal claims in its latest Car Price Index.

The car website cites analysis undertaken by the TCD and NUIG Economist Dr Tom Gillespie which shows that limited supply and intense demand has meant that cars are currently holding their value for longer and in some cases even appreciating in value.

According to the newly developed used car price index based on DoneDeal's car dataset, used car prices have increased by 40% in the year from June 2020 to June 2021.

The increase in prices has outweighed depreciation rates for most vehicles and is believed to be having the greatest impact on the lower end of the market.

The report uses the example of a 2015-registered used car purchased on 1 January 2020 which, it says, may now be worth more now in July 2021, even after adding 20,000 kilometres to the clock.

A pandemic-induced supply shock, which has affected most car markets globally, has been exacerbated here by the compounding effect of Brexit, which has seen car imports falling by up to a third on 2019 levels.

Added to this, the boom in the stock of cars from the latter Celtic Tiger years (2005-2007) is now becoming obsolete.

The retirement of much of that stock is putting pressure on overall car market supply, the report states.

On the demand side, the pandemic is understood to have resulted in increased reliance on cars as more people move out of cities and public transport runs at reduced capacity.

And many people have increased levels of disposable incomes after long periods of saving during the pandemic restrictions.

It is expected that some of this is making its way into the economy in the form of car sales.

The report concludes that the surging demand based on increased spending power may ease somewhat when public transport returns to regular capacity, and there are more opportunities to spend money on other activities.

"However, if supply takes longer to catch up, this growth in prices may not reverse in the near term. In that scenario, cars may hold their value for longer," the report states.