Is the flat market in the UK broken

Is the flat market in the UK broken

Flats are falling out of favour. We have never been a nation of apartment-dwellers, sauntering through lobbies and shoving bags into bin chutes as many of our American cousins happily do. But an acute housing shortage and rapid population growth in the cities have led to dense residential skyscrapers, crammed with as many flats as they can hold. Even our urban Victorian terraces are subdivided into “lateral” spaces these days. The question is, does anyone want them any more?

There is mounting evidence that our flat market is, well, flat. The average price for a detached house has risen from £380,654 to £411,649 since January this year, according to the Office for National Statistics, while the average price of a flat has risen from £212,342 to £220,756 in the same time. The same figures show that the average value of a flat is lower in 19 areas — mainly affluent parts of London and the South East — than it was five years ago. Nearly one in five flat sellers who bought their property after 2016 made a loss.

Flats are taking much longer to sell than houses. David Fell, a senior analyst at Hamptons estate agency, says: “Since 2016 this figure has crept up as the London market, which accounts for about a third of flat sales nationally, has slowed. Houses still sell 20 days faster than flats on average.”

Only 43 per cent of flats on the market are under offer or subject to contract, compared with 73 per cent of houses, according to PropCast, a data analyst. One-bedroom flats are the least desirable, with 44 per cent under offer, along with three-bedroom ones. Two-bedroom flats are more popular but still only 50 per cent are under offer. This is partly down to a lifestyle change after the successive lockdowns. The country house market is thriving, with 13 buyers chasing every rural home, reports Knight Frank; it is the highest demand the estate agency has seen in eight years.

Homemovers are looking for space, particularly outside space, and enough room to work from home. One-bedroom flats, which rarely come with much more than a balcony, are out of fashion. And tax changes, such as the withdrawal of mortgage relief for buy-to-let landlords, are causing many to sell up, further flooding the market with unwanted flats. This is splitting the housing market in two, with owners of houses finding they are in the biggest sellers’ market for a decade, while flat owners struggle to sell.

“My advice would be to look at the situation as if you are in a buyers’ market,” says Gavin Brazg, PropCast’s chief executive, “which is a time where you have to change your selling strategy in order to achieve the best possible price and fast.

“The best way to strengthen your position is to price conservatively from the start and choose a local, trusted estate agent who truly knows the market and how best to position your home within it.”

The places where flats are selling well are invariably by the coast or close to open countryside. Some 71 per cent of the flats on the market in Bristol are under offer, with Cornwall (66 per cent), Dorset (65 per cent) and East Sussex (63 per cent) hotspots too, PropCast reports.

“A lot of demand is a result of the soaring popularity of staycations that we have seen over the past 18 months,” says James Gibbs of Jackson-Stops’ Exeter estate agency. London is the least popular location in which to sell a flat — only 35 per cent are under offer in the city.

In a further sign that confidence in London’s flat market has collapsed, the National House Building Council reported that 78 per cent fewer new residential schemes were started in the capital compared with the same quarter last year.

Jasmine Birtles, who is selling her one-bedroom flat in Notting Hill, west London, for £695,000, was told by her agent at John D Wood & Co to make it as “sparkling” clean and inviting as possible because the market was “low”.

“I know that if I held on to my flat I would find a better time to sell in a year or so but I have other things I want to do with the money, and most importantly the time, which is why I’m letting it go now,” she says. The 48-year-old founder of the consumer finance website Money Magpie has turned it from a “tatty” studio into a one-bedroom home with a mezzanine-level office. “It has had a fair bit of interest, particularly from people from abroad and parents looking for somewhere safe and central for their children. However, it’s quirky so not for everyone,” she says.

If you can’t squeeze in a home office, buying a fixer-upper is still a surefire way to sell a flat well. Ollie St John, a 26-year-old property developer, sold his two-bedroom flat in Battersea, south London, for £540,000 — £15,000 over the asking price — in six days. He redecorated it in a Brooklyn industrial style, opened up the kitchen to create an open-plan layout and put en suite bathrooms in the two bedrooms.

“The agent did say there was a market slowdown, but there’s a huge demand for properties that you can move into straight away and this was exactly that,” he says.

The London flat market has been hit badly by the absence of overseas buyers who have been unable to travel to view properties during the pandemic. “Flats have been the flavour of the past ten years because they appeal to the international market. “They’re easy to manage, secure, and on one floor,” says Roarie Scarisbrick of the buying agency Property Vision. “If you look at the relative value of flats against houses, it got completely out of kilter. There has been a price readjustment and a levelling-up exercise going on and houses have been given the chance to gain ground. Flats will come back, though, because they are a nice way to live in cities.”

Some of the problems hindering the flat market predate Covid-19 and will have a longer-term impact. The building safety scandal that has engulfed the new-build sector since the Grenfell Tower fire in 2017 has left an estimated 700,000 people in unsafe homes and up to three million people struggling to sell their properties. This has had a significant impact on property chains, and the developer Bellway said this week that unless it was resolved the crisis could drag on for “two decades”.

Neal Hudson, a residential analyst at BuiltPlace, says: “The government needs to be serious about this and sort it out because it will start to impact on the delivery of new homes. Conservative MPs don’t appear to want houses built on their green and pleasant land, so that puts more pressure on to build city-centre flats, and that’s a problem if no one wants them.”

Rising property prices have their part to play in the longer-term turn-away from flats. The first-time buyer journey from city starter-flat to a semi-detached house in the suburbs has been disrupted. Younger buyers who have spent the best part of a decade saving for a deposit are moving straight onto houses in the outskirts.

“They want a bit more out of that investment,” says Rufus Williams at the Property Partnership estate agency. It has offices in southwest London and Surrey, so Williams has seen the earlier migration first hand. “Couples without children are moving out to the suburbs in their late twenties and early thirties. That’s about ten years sooner than we had previously seen.”

Williams says first-time buyers and international buyers are increasingly aware of the pitfalls of buying a leasehold property, the tenure of most flats in the UK. One buyer pulled out of sale recently because the lease forbade pets.

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“He didn’t even have a dog, but it was in his thoughts to get one,” Williams says. “It’s about having control. I think there are apartment blocks being built in Manchester, London and Liverpool that the developers know will be populated by renters. The dynamic of our cities will change, and we’re only seeing the tip of the iceberg.”