31 January 2023 – New data suggests that there is a shift away from houses towards flats. 5% more new buyers are looking for flats compared to the same period last year.
The property market had a slower start to the year than in previous years. However, demand is 10% higher than at the start of 2019. But still 23% below the five-year average, according to Zoopla’s latest House Price Index.
Many of the new buyers coming to the market are looking for flats, especially in areas that are next to big cities. 27% are looking for flats, with either one or two bedrooms, up from 22% in 2022.
In London, 49% of enquiries are for 1- and 2-bed flats, which is up from 42% last year. But this trend has been seen across the UK, not just in the capital, according to the property portal.
Buyers Looking For Flats To Get Better Value For Money
Rising inflation has meant that in response the Bank of England has raised the base rate nine times since 2021. This in turn has increased interest rates and mortgage rates.
The first few weeks of the year have got off to a stronger start than might have been expected given how market activity stalled at the end of 2022. There has been a clear shift towards flats as the early buyers focus on value for money and adjust expectations given the hit to buying power from higher mortgage rates.
Richard Donnell, Executive Director at Zoopla
Mortgage rates have fallen again since they soared above 6% in September 2022 and are now below 5%. It is anticipated that the rates will remain between 4% and 5% throughout 2023. This means affordability to buy a home has decreased for many.
This has led many buyers looking for flats in order to get value for money. An average 2-bed flat outside of London costs £196,000 according to Zoopla. In comparison, a 3-bed house costs £293,000. This is almost £100,000 cheaper, which means it’s more affordable.
A 1-bed flat is on average £150,000 cheaper, giving first-time buyers a better chance to get onto the property ladder. Given the recent hike in rent prices, it is no surprise that they are willing to compromise in order to avoid paying sky-high rents.
While value for money is a big driver of this shift, it also suggests that people are returning to cities. During the pandemic people were leaving the city, with offices and shops closed, in search of more space.
But Zoopla’s data shows that this trend is now reversing. As offices and shops re-opened, people are coming back to the cities.
Even though 27% of new buyers are looking for flats, 3-bed houses are still most in demand across the UK, with 39%, albeit this is down from 44% at the start of 2022.
Demand for 2-bed houses has slightly fallen from 17.1% to 16.7% compared to last year. In contrast, demand for 4-bed+ homes has increased marginally from 13.5% in 2022 to 14% in January 2023.
Given the economic situation, with inflation still at a 40-year high level, energy prices due to rise again in April 2023 and elevated mortgage rates, it is likely that this trend towards flats will continue throughout 2023.
Increased Supply Releases Pressure on Price
Zoopla’s latest House Price Index also shows that supply issues are starting to get resolved, with more homes for sale coming on the market.
While the stock levels are still 6% below the five-year average, there has been a significant rise in new properties coming onto the market in recent months. Now estate agents have on average 23 homes for sale on their books, compared to only 14 homes at the beginning of 2022.
The lack of supply defined the property market last year, which pushed up house prices to record highs. Now that there are more houses available again, house prices are likely to fall or at least rise at a lower rate.
The shift away from a sellers market, where demand outstripped supply, means that sellers need to be realistic when pricing their home in 2023. Overpriced houses are unlikely to sell, especially when affordability is a struggle for many buyers.
Given the sharp increase in house values during the pandemic, sellers shouldn’t be worried about pricing their home competitively. They are still likely to make a profit.
Anyone serious about selling needs to be realistic on the asking price and needs to ensure this is in line with what buyers are prepared to pay.
Richard Donnell, Executive Director at Zoopla
The property portal predicts that house prices will continue to fall moderately during the first half of 2023, due to the economic headwinds most households are still facing. This might prompt some buyers as well as homeowners to sit tight and wait and see.
Once there is more clarity as to mortgage rates and house prices, the market might pick up again.
