Flats were temporarily out of favour earlier in the pandemic as people sought larger homes with more space. However, new data from Halifax suggests that the ‘race for space’, which has been one of the main drivers of the booming property market, may be waning.
More buyers are now willing to purchase smaller properties, and the most recent Halifax House Price Index shows that the price growth of flats in the UK has outpaced that of detached houses over the last year. Here’s the lowdown.
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What has happened to house prices over the past year?
According to the latest House Price Index from Halifax, UK house prices were up 1% (+£2,808) in November. This brings the annual rate of growth to 8.2% (+£20,000).
The Halifax Index further shows that the three months to November witnessed the fastest quarterly growth in house prices for 15 years (3.4%). The price of the average house now stands at a record high of £272,992.
However, the increase in price is not the same for all property types. Flats have experienced a 10.8% growth in the last year while detached properties are only up 6.6%.
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Why has the price growth of flats been higher?
Sarah Coles, personal finance analyst at Hargreaves Lansdown, attributes the greater price growth of flats to higher demand from first-time buyers, many of whom are perhaps choosing to buy flats rather than houses for their first property.
She states that there are a couple of forces driving this demand from first-time buyers.
The first is a fear of missing out. As Coles explains, because of rising house prices, first-time buyers are becoming increasingly concerned that they will be priced out of the market in the near future. As a result, many are doing everything they can – including seeking help from their families and taking advantage of government schemes such as the Lifetime ISA and the Help to Buy equity loan – to get on the property ladder as soon as possible.
The value of houses in the current market is rising, and as a consequence, many parents are now more comfortable dipping into their equity to fund their children’s deposits. Once they have these deposits, first-time buyers are further encouraged to take the plunge by the ultra-low mortgage deals that are currently on offer in the market.
But it’s not just the demand from first-time buyers that is behind the higher price growth of flats. According to Coles, a significant number of people are remortgaging and then using the cash they have freed up to buy another property, either as a second home or as a buy-to-let. This is further driving up the demand for flats.
Does this mean first-time buyers are better off buying houses?
Not necessarily.
Soaring house prices mean that first-time buyers need to save more for a deposit on a house. Despite flats recording higher price inflation than detached houses, they still offer the cheapest way for first-time buyers to get on the property ladder. The deposit required and mortgage repayments for a flat are likely to be lower than they are for a house.
Flats also have a number of other advantages that may appeal to first-time buyers, many of whom are likely still trying to establish themselves financially.
For instance, flats are typically low-maintenance when compared with a house. For most, the cost of maintaining common facilities is usually split between flat owners.
Additionally, some flat complexes may include free facilities, such as gyms or swimming pools. The majority of flats are also located near cities, which makes access to various amenities more convenient.
Of course, flats also come with a couple of drawbacks. These include limited living space and storage, the possibility of disruptive neighbours and restrictive laws.
