While house prices and mortgages may have risen, the price of the family car is falling according to Alliance & Leicester, who sponsor the Car Price Index.

New car prices have fallen from an average of £14,397 to just over £13,000, over the past five years. This is a difference of over £1,000 or 9.2 per cent, while nearly new (one-year-old) and used (three-year-old) cars have seen even more significant price falls.

The average price of a nearly new car has fallen by £3,000, a drop of over 20 per cent. Likewise, the price of used cars has followed a similar trend, falling by just under 25 per cent to an average of only £6,881 in June 2004.

But despite falling car prices, the proportion of total weekly household expenditure used to purchase vehicles has risen from 4.7 per cent in 1994/95 to 6.6 per cent in 2002/3. This can be explained by the increasing proportion of households that now have more than one car.

Another trend witnessed over the past five years is that in general cheaper cars have fallen at the greatest rate. City Cars, the category with lowest prices, have seen prices fall by over 18 per cent since June 1999, compared to an average of just 5.4 per cent across the Luxury Car category. This may be explained by the fact that City Cars account for a large proportion of the cars imported from lower-cost producers such as the Far East.

However the clear downward trend in car prices was not echoed elsewhere during the same period. House prices, petrol and oil prices and the cost of repairs and maintenance to motor vehicles, have all continued to rise - by 108 per cent, 15.5 per cent and 38.1 per cent respectively, with the overall cost of living up by 12.8%.

Over the last five years buoyant consumer spending has ensured demand for new cars has remained very strong, with record volumes of cars sold year on year. Despite increasing demand, prices have fallen.

Prices have been squeezed in recent years as manufacturers and dealers faced increased competition from cheap imports, a situation which was compounded by the lifting of Voluntary Export Restrictions (VERs) and media coverage of the ‘Rip off Britain’ campaign which led to a Competition Commission report into the relative prices of cars across Europe.

Alliance & Leicester head of personal loans Andy Bayes said that prices had fallen despite ever-increasing demand for new vehicles.

"The last five years have seen the car buying consumer's position strengthen," he said.

"Not only have prices come down but it has never been easier to compare them and to use that knowledge to drive a really good bargain."

The Alliance & Leicester sponsored Car Index is researched and produced by research consultancy the Centre for Economics and Business Research.