Rising Demand For Flats Trumps ‘Race For Space’

rising demand for flats
Experts say the reopening of some offices and the end of the Covid stamp duty break are skewing demand in favour of flats in the UK housing market.

According to Halifax BS, the ‘race for space’ that became a marked feature of the property market during the Covid pandemic could be starting to slow. As the Government introduced a stamp duty holiday and people steered clear of city centre work and life during lockdowns, demand for rural living, or a spare room, increased.

Yet the mortgage lender, in the latest snapshot of the housing market, says there are signs this trend could be declining. The price growth of flats is now overtaking that of detached houses, which were highly sought after during lockdown.

In November, flats changed hands for 10.8pc more than at the same time last year, whereas detached houses on average had risen by 6.6pc. But the differential obscures the fact that a smaller price rise presents as a larger percentage at the lower end of the market.

For example, the average price of a flat on which Halifax agreed a mortgage in November was £118,771, a rise from £107,159 the previous year, while the average detached house costs £517,650, up from £485,684 in 2020.

Demise of stamp duty holiday impacting market

There are several factors underlying the reason why demand may have swung in favour of flats. As more people worked from home, the housing market prospered from the purchases of larger properties, and commentators reported that lifestyle changes spurred by the pandemic were driving demand for homes with studies, spare rooms and gardens.

Coincidentally, these were also the properties where buyers stood to gain the most from stamp duty holidays initiated after the first lockdown. Until the end of June, homes in England and Northern Ireland costing up to £500,000 could be bought with no tax payable.

Even so, buyers paying more than this for a property could still save £15,000 in duty, which may have encouraged many to bring forward purchases, or to apply for the maximum loan to buy a more expensive home.

As evidence of increased demand from buyers, flats last month overtook detached houses, which had been the most searched for type of residence in November 2020, according to the property portal Rightmove.

Move towards family home plus studio flat

Tim Bannister, Rightmove’s property data expert, says the shift in demand is the result of commuters assessing where they want to live during the week, with many now considering a move closer to a city. Prospective buyers looking for a flat, he adds, albeit with a balcony or shared garden, have enjoyed more availability in this sector and lower average asking price growth over the last year, although there is now more competition.

Jeremy Leaf, a north London estate agent, is still receiving multiple offers for three- and four-bedroom family houses, but believes flats are making a comeback now that post-furlough working and commuting patterns have been finalised, at least for the time being.

Sarah Coles, personal finance analyst at asset management company Hargreaves Lansdown, offers a different explanation for the increased demand for flats. Industry figures, she says, show the amounts people have been withdrawing when remortgaging have been rising, £80,000 on average, for reasons other than debt consolidation or home improvement. She believes a high proportion of the money is being used to fund another property.

Although second homes are typically a cottage in the countryside or by the sea, the pandemic has changed the way people live, and may also be altering second home trends. The growth in flexible and hybrid working, says Coles, means it makes more sense for buyers to purchase a home in the most desirable location, plus a small bolthole near work for use when they have to go into the office.

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