Flats Driving UK Property Market Price Growth

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Small Homes Becoming More Popular in the UK Property Market

Halifax recently released data showing that smaller homes experienced the most significant price increases in the early months of this year.

Nationally, property prices rose by 1.9% in February, rebounding from a low of -4.1% in October 2023. Prices have increased by £5,318 in the past year and are now just £7,801 below the peak seen in August 2022.

Despite economic challenges, property prices remain 19.9% (£47,573) higher than pre-pandemic levels, compared to a 13.4% (£28,027) increase in the four years before March 2020.

Halifax’s data indicates that smaller homes have seen the most substantial price growth this year as rates stabilise and activity increases. This trend reflects buyers adjusting to higher borrowing costs and living expenses.

A resilient first-time buyer market has played a significant role. Although the overall number of first-time buyers is lower, they accounted for 53% of all homes bought with a mortgage in 2023, the highest since 1995.

Flats and terraced houses comprised 57% of all homes purchased by first-time buyers last year, but this varies across regions. In London, where property prices are highest, flats and terraced houses make up 90% of first-time buyer purchases.

Let’s see what this news means for buy-to-live and buy-to-let property investments.

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What Is Property Price Growth Like for Different Properties?

Flats

Buyer preferences have shifted away from spacious homes, leading to rapid price increases for flats this year.

In February, annual growth reached 2.7%, with prices rising by £4,290 over the past year. Scotland saw the most robust growth, with flat prices rising by 5.9% (£6,489) to £116,477. Only Yorkshire and Humberside saw a decrease in flat prices, falling by -2.9%.

Nationally, flat prices remain 11.9% (£17,349) above pre-pandemic levels, with the East Midlands showing the most significant gains (18.7%, £20,923).

Terraced Houses

The preference for smaller homes extends to houses, as evidenced by the 2.6% (£5,643) growth in the average price paid for terraced properties over the last year, reaching £224,173.

The North East experienced the highest annual increase in terraced house prices, rising by 7.6% (£8,938).

In the longer term, the average price for terraced homes has increased by 20.5% (£38,090) over the last four years.

Semi-Detached & Detached Houses

As demand for larger properties decreases, semi-detached houses have seen weak annual growth, rising by 1.7% (£4,797) over the last year to an average price of £295,199.

The North East saw the largest increase, up 5.9% (£10,381). However, prices fell in Eastern England (-1.3%), Greater London (-1.2%), and the South East (-0.8%). Since March 2020, prices for semi-detached homes have still risen by 21.4% (£51,950).

Detached houses saw an annual growth of 2.0% (£8,853), with Yorkshire and Humberside recording the largest increase at 5.0% (£17,300). Detached homes maintain the largest increase in average price over the last four years, up 23.9% (£87,034).

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What Did Halifax Say About Property Price Growth?

Head of Halifax Mortgages, Amanda Bryden, said: “It’s important not to gloss over the challenges facing the UK housing market, given the impact of higher interest rates on mortgage affordability, coupled with a continued lack of supply of new homes. But scratch beneath the surface and there is a more nuanced story, one which shows that demand for different property types in different parts of the country can vary hugely. As interest rates have stabilised and buyers adjust to the new economic reality of owning a home, one way to compensate for higher borrowing costs is to target smaller properties.

“This is especially true among first-time buyers, who have proven to be resilient over recent years and now account for the largest proportion of homes purchased with a mortgage in almost 30 years. We see this reflected in property prices for the first few months of this year, with the value of flats rising most sharply, closing the ‘growth gap’ on bigger properties that’s existed for most of the last four years.”

If you want to understand regional property markets, take a look at our buy-to-let area guides, including:

Author

Dale Barham

Dale is a property content writer at RWinvest. Keeping a close eye on the UK property market, Dale helps our readers stay informed and up to date on the latest market news and statistics.