In a somewhat surprising reversal, apartments are now increasing in demand far faster than houses, which dominated the market during the pandemic. The resurgence in demand can be attributed to the rapidly rising mortgage rates and the prevailing cost of living crisis. According to property portal Zoopla, this year, 20% of aspiring homebuyers have been actively searching for two-bedroom flats, representing an increase from 17% in both 2021 and 2022.
Conversely, the proportion of first-time buyers interested in three-bedroom houses has declined to 40%, down from the peak of 46% in 2021. Demand for two-bedroom houses has also waned, while there has been a significant increase in demand for one-bedroom flats. Separate data from the portal Rightmove reveals that the number of flat sales agreed in March surpassed the levels seen in March 2019 by 10%.
Despite apartments constituting approximately one-fifth of British homes, their prices have lagged behind the soaring growth experienced by houses, especially since the onset of the pandemic. Richard Donnell from Zoopla explains, “Flats haven’t witnessed the same value gains as houses, partly because the search for space made them a less popular option during the pandemic, but also due to buyer concerns regarding cladding and leasehold charges.”
Nevertheless, Donnell anticipates that the demand for flats will surge throughout the year as buyers seek better value for their money. Additionally, government initiatives aimed at resolving cladding issues in most buildings will further enhance their popularity. Following the Grenfell fire in 2017, it became evident that numerous flats were covered in combustible. The ensuing disputes over repair costs hindered apartment sales. However, the intervention of Michael Gove, the Levelling Up Secretary, has changed the picture dramatically.
Analysis conducted by Hamptons estate agency, based on Office for National Statistics data, reveals that since January 2020, the average detached house has appreciated by 30%, equivalent to £108,178 in cash terms, reaching an average price of £464,425. In the same period, semi-detached houses saw gains of 27% (£59,385), while terraced houses witnessed a 25% increase (£47,371). In stark contrast, flat values have only risen by 14%, or £27,583, with an average price of £228,242.
However, David Fell of Hamptons suggests that detached home prices are currently experiencing a significant decline as the pursuit of spacious living reaches its limit and cost pressures intensify. On an annual basis, 57% of local authorities are witnessing falling detached home values, compared to just 8% experiencing similar trends for flats. Mr. Fell explains, “While the price gap between houses and flats would eventually have started to close at some point, the process has undoubtedly been accelerated by higher interest rates, which have eroded affordability quickly and significantly.”
In response to persistent inflation, the Bank of England raised the official interest rate by 0.5 percentage points to 5%, the highest level in 15 years. Forecasts indicate that the Bank Rate may climb close to 6% by the end of the year. These rising rates are putting pressure on borrowing capacity and affecting not only first-time buyers but leading many people to downsizing to smaller, more affordable homes with reduced maintenance and lower energy costs.
Furthermore the appeal of flats in urban areas is being bolstered by employers increasingly expecting workers to return to offices, and individuals who relocated to rural areas during the pandemic expressing regret over their decision.
Ed Lewis from Savills estate agency explains, “Disruption in travel and the increased chores and costs associated with maintaining the house and garden make a flat in the centre of town, with everything on your doorstep, an appealing option. Those that rushed out to houses in the country are rethinking as they miss the vibrancy and buzz of the urban lifestyle.”
James Holroyd from the buying agency Property Vision explains, “We’ve seen an influx of overseas buyers from North America, Asia, and the Middle East this year taking advantage of the weakness of the pound, which makes buying property seem far more attractive. During Covid, outside space was a non-negotiable, but this requirement has now subsided.”
