Clapham Common, 1996. Down a narrow south London lane, I gazed through the little showroom window into the aptly named Paradise Garage. Inside was a California sage-coloured Aston Martin DB4 Zagato, beautiful, and rare — one of only 19 made. It was valued at £500,000 — way beyond my means. I would soon sell my flat round the corner for under £200,000 (how I would regret that sale!) and move to Seattle.

Twenty years on, it is instructive to draw a fresh comparison. Since then, the benchmark FTSE 100 index has more than tripled when measured on a total return basis. The two-bedroom flat that I’d rashly sold, which offered south facing views over Clapham Common plus a blue heritage plaque honouring Graham Greene, has risen in value a multiple of five — and this doesn’t take into account the stream of rental income I could have received, or the potential tax benefits of it being deemed a primary residence.

But even the increase in London property prices pales in comparison to that memorable Aston Martin Zagato. Another of the 19 made — licence plate 4 RTA, also California sage-coloured — recently sold at a Sotheby’s auction in New York for $14.3m, or slightly more than £10m at current exchange rates. That’s a twentyfold increase, and while there are auction fees to consider, it also comes with an exemption from UK capital gains tax.

With the benefit of hindsight, investing in a classic car back then would have set me up for life. But as this alternative asset class breaks one valuation record after another, are those impressive returns about to come off the gas?

The 4 RTA is far from being the most expensive car to sell at auction in recent months. That accolade goes to a red 1957 Ferrari 335 Sport Scaglietti, sold in Paris for €32m (more than £25m). It was one of four made, but given that it came second at the 1957 Mille Miglia, set a lap record at Le Mans and was driven by Stirling Moss, it might more accurately be judged as being one of one.

Scarcity alone cannot explain these valuations. Emotion cannot accurately explain them either, in the way that it enters the frame with, say, fine art. However, emotion as a line of inquiry gets us closer. In the words of Matthieu Lamoure, managing director of the Artcurial Motorcars auction house that sold the Ferrari 335: “The market is a question of generation. You want to own the car that was a dream for you when you were a child.”

Two examples, from opposite ends of the classic car spectrum, appear to confirm the driving role of nostalgia.

The Aston Martin DB6 (produced from 1965-70) is functionally equivalent to its predecessor DB5 model (1963-65), but for the enlargement of the cabin space. The two cars share the same engine, gearbox, back axle and chassis design. Yet while a pristine DB6 now sells for more than £400,000, an equivalent-condition DB5 will change hands for almost double that amount.

This is partly due to more DB6s than DB5s being produced, however the most convincing explanation is James Bond: specifically Goldfinger, but also the car’s numerous cinematic outings during the Pierce Brosnan and Daniel Craig years, and possibly even those little model DB5 toys that current buyers may well have been gifted in their youth.

Much depends on what happens to the market overall, and whether it can keep rising in the way it has. Dietrich Hatlapa of Historic Automobile Group International (HAGI) compiles an index of classic cars that might be characterised as the mid-to-top end. The index has been quoted in publications such as the Knight Frank Wealth Report. It confirms the outperformance of high-quality classic cars over recent years relative to asset classes such as prime London property. But can this strong performance continue — or are classic car valuations heading for an expensive crash?

Looking back through the history of the index, the last time valuations received a sizeable dent was in the early 1990s. Back then, market commentators blamed speculators with borrowed money for pushing up prices. This time around, they’re keen to stress that new, wealthy collectors from around the world have expanded the market for the best cars, and are less likely to turn into forced sellers should values take a u-turn.

“In the long term, we will probably be in a world of driverless vehicles — the sort of machines being developed by Google now, theoretically making anything we know today as cars into collectable items,” comments Mr Hatlapa. “In practice, some cars will always be more collectable than others.”

Leading dealers concur with his cautious confidence, but reiterate the need for discernment.

“Whether you’re looking at a £15,000 Golf GTI Mark 1 or a £750,000 Aston Martin DB5, the key is being selective,” says Paul Michaels of Hexagon Classics, which operates two London showrooms in South Kensington and East Finchley that resemble grown-up toy shops.

“The very best cars — meaning those with full histories in exceptional condition, either completely restored or lovingly maintained with some age-related patina — will always command the highest prices.”

Mr Michaels expects price rises to average a more sensible 7-8 per cent over the next three years — which could be wiped out by the cost of maintaining and storing a classic vehicle — but others are more cautious.

“If you look at the latest auction results, sell-through rates remain strong, but the number of vehicles not making their estimate has risen,” points out Simon Marsh, a partner at wealth manager Killik & Co. “However, this might have more to do with overambitious pricing by sellers, aided and abetted by the auction houses.”

Another car that has performed well in recent years is the bellwether E Type Jaguar. I’ve had the privilege of owning one myself. My dad had a 1965 Series 1 coupe; it was the car I coveted in my youth. In 2005, I put a cash bonus towards buying an opalescent silver-blue 1967 Series 1 roadster in San Francisco for the dollar equivalent of £47,000. I’ve heard aficionados talk about these cars in terms of a longing, an ache in the chest. For what exactly? Not for the driving experience, based on my experiences of owning one.

On one terrifying occasion in Seattle, my E Type stalled and rolled to a stop in a four-way intersection beside the city’s arterial Interstate 5 freeway. For a moment, there were just slack-jawed stares from the SUV drivers seated high above me. Soon blaring horns too, from further back, for this was rush hour. I kept pressing the starter button and only on the seventh or eighth try did the engine fire.

Yet even in stressful moments, it was hard to resent this car. The old wool smell of the cabin; the polished wood of the wide steering wheel; the purr of the engine and that exhaust note (while it worked). The 4.2 litre engine could pull away from traffic lights and accelerate to 70mph in second gear. Modern economy four-doors might go faster and certainly offer an easier driving experience, but no car won the same approving looks on the road.

I shipped the E Type back to the UK when I returned to London, and there the excitement continued — of seeing whether the car would start, or stall in traffic. Above 50mph the car handled impeccably and sat on the road like a stone, but at lower speeds the steering was laboriously heavy … and so the list of practical drawbacks went on. Locating and budgeting for storage proved the final straw, and so I sold it to a dealer for £60,000 in 2010 concluding that central London simply wasn’t the E Type’s natural habitat.

It proved to be another asset sale I would later regret. Having my time again, I would have held on to it, and not just because a Series 1 roadster in the right condition can now fetch £175,000 — fast approaching the average UK house price. Today, there are new solutions for alleviating the stresses of classic car ownership.

One is Bicester Heritage in Oxfordshire, an hour’s travel time from central London. This former RAF Bomber Command base is being converted to a hub for classic car storage, maintenance and restoration. For a basic storage fee of £155 a month including VAT, you can leave your car safe in the knowledge that its every requirement can be attended to, should need arise — and believe me, it will.

The trend towards outsourced ownership arrangements is particularly noticeable at the top end of the market. John Goldsmith of Goldsmith & Young, an Aston Martin restorer in Wiltshire, has maintained and raced cars for both the Goodwood Revival and Festival of Speed meetings. Indeed, he and his wife Gillian raced 4 RTA (the auctioned Aston Martin Zagato) at the first revival meeting in 1998.

Over the intervening two decades, Mr Goldsmith has seen a marked change in the composition of the starting grid at Goodwood. “Back in 1998, when the Revival Race began, the vast majority were owner-drivers. This is no longer the case,” he says.

The change reflects a variety of factors, including Goodwood’s astute involvement of celebrity drivers such as David Coulthard, who have only added to the glamour of the event and broadened its appeal. Rising vehicle values have also played a role. Some owners understandably seek a more cautious and arms-length relationship with an asset worth £10m plus, preferring professional drivers to take the cars out on the Goodwood track in order to enhance their history and provenance.

This said, the “gentleman” owner-driver is by no means extinct on the Goodwood starting grid. “Drivers such as Nick Mason are still there,” enthuses Mr Goldsmith, “attracted by the adrenalin-fuelled rush of it. Some relish the gladiatorial aspect of the occasion, which may, in certain cases, reflect their business lives … while others are attracted by the idea of reliving their youth.”

Away from the Goodwood starting grid, there is a gathering sense of caution. “If you’re looking to double your money overnight as you might have done with certain models in 2014, then forget it,” warns Paul Michaels of Hexagon Classics. “We’ve entered more sober times.”

Nevertheless, these classic cars represent a unique asset class — part investment, part thrall to automotive art and part childhood dream. Collectable toys might be the closest investment comparison, yet unlike those little James Bond Aston Martins that tumbled out of Christmas stockings, these ones now come with very grown-up price tags.

Costs of classic car ownership

Classic car ownership brings specific costs and benefits relative to other investments. The tax treatment is generally benign. In the last Budget, classic cars were permanently exempted from UK road tax — although a classic car is defined as a vehicle more than 40 years old, which may disappoint owners of vehicles built after the start of 1976.

If the car is imported from an EU country, it will not be subject to UK import duties. Provided that VAT has been paid in the country of origin and it has more than 6,000km on the clock, then no import VAT will be due. From outside the EU, UK duties and other taxes may apply.

Classic cars are free of UK capital gains tax, a significant advantage for those owners now sitting on substantial gains as prices have soared. Although they will probably have auction fees or other sale costs to pay, not a penny of tax will be due on the sale of their vehicles, which are classed as “wasting” assets by HM Revenue & Customs. Anything mechanical is judged to have a useful life of 50 years or less, and to have little or no value after that.

For owner-drivers, insurance is low for road use — especially if the car qualifies for club rates through an organisation such as the Jaguar Enthusiasts’ Club. A very rough guide is to budget 0.5 per cent of the vehicle’s value by way of annual premium. But insurance for the racetrack is a different matter. Owing to both high premiums and deductibles, some owners of cars raced at events such as Goodwood accept the risk of accident repair costs, given that the real value of these vehicles lies in the chassis number.

Also to be factored in is the cost of more routine repairs, which — depending on the vehicle and repair type — can quickly run into the thousands if not tens of thousands of pounds. As a rule of thumb, owners should allow another £500 to £1,000 for an annual check up and service. Storage needs to be considered too; this can range from a negligible amount for a basic site in rural areas to up to £300 (including VAT) a month for a secure, climate-controlled facility in central London.

Demand has grown for “turnkey” service arrangements. For example, Bicester Heritage in Oxfordshire offers both storage and on-site repair and maintenance.

“It is the automotive equivalent of keeping a boat in an atmospheric marina,” explains managing director Daniel Geoghegan. Storage at Bicester costs £155 a month (including VAT). Just an hour’s journey time from central London, the site supports 35 service companies, including an upholsterer and a Bentley specialist. Mr Geoghegan is now considering expanding the business to other locations.

Additionally, owners may be advised to arrange a breakdown service with an organisation such as the RAC. In recent years, the costs explained above have been dwarfed (at the mid-to-high end of the market) by rising car values, the question now being whether price rises continue — and if so at what rate.

Daniel Pembrey is an author and freelance features writer. His debut novel “The Harbour Master” will be out with No Exit Press in November. @DPemb