Prices for smaller homes are rising at a faster rate than larger properties, says Halifax. The bank says that smaller properties, particularly flats, are in higher demand due to affordability constraints faced by house hunters.
The bank noted that demand and home buyer’s priorities have now shifted, reversing the ‘race for space’ trend that was predominant during the Covid pandemic when desires for larger homes soared.
Over the last year up until February, the cost of an average flat grew by 2.7 percent, whilst the price of terraced houses increased by 2.6 percent. Increasing at a slower pace, prices for semi-detached and detached properties climbed by 1.7 percent and 2.0 percent respectively.
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Across Britain, Scotland saw the most significant price jump for flats with a 5.9 percent rise. Yorkshire and the Humber were the only regions where flat prices fell in the last year, with a decrease of 2.9 percent. Interestingly, the same region recorded the biggest hike in detached house prices, with an increase of 5.0 percent.
Meanwhile, in the north east of England, the typical price of a terraced home shot up by 7.6 percent, making it the area with the highest percentage rise. This region also saw the greatest increase in the average cost of semi-detached houses – up by 5.9 percent.
When taking pure cash values into account, detached homes garnered the heftiest price surge over the past year to February, averaging an uplift of £8,843. In comparison, the average notably lower-rise for a flat was £4,290.
The higher interest rate environment has led to a tightening of mortgage affordability, causing many potential homebuyers to think twice before entering the market, according to Halifax. However, the bank noted that as interest rates have begun to stabilise and market activity picks up, it’s the smaller properties that are seeing the most significant price growth at the start of the year.
Homebuyers are adjusting their expectations in light of higher borrowing costs and the broader cost-of-living challenges, Halifax suggested. The bank also highlighted the strength of the first-time buyer market, which, despite a lower overall number of first-time buyers compared to recent years, accounted for 53% of all homes bought with a mortgage in 2023 the highest proportion since 1995.
Flats and terraced houses were particularly popular among first-time buyers last year, making up 57% of their purchases. Amanda Bryden, head of Halifax Mortgages, commented: “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.”
She added: “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.”
The latest data reveals an expected surge in property transactions, with property portal Zoopla predicting around 100,000 more sales in 2024 compared to 2023, estimating about 1.1 million deals this year.
Zoopla has also highlighted that certain regions, particularly southern England and the East Midlands, are likely to continue seeing price declines.
Richard Donnell, Zoopla’s executive director, commented: “The pipeline of sales is growing and we expect 100,000 more people to move home in 2024 than last year.”
Halifax has provided a breakdown of the average UK property price increases by type for the year leading up to February. The figures detail the average prices in February 2024 alongside the annual growth in both percentage and monetary terms:.
- Flat: £163,016, up 2.7%, which is an increase of £4,290.
- Terraced: £224,173, up 2.6%, equating to a rise of £5,643.
- Semi-detached: £295,199, with a 1.7% increase, or £4,797.
- Detached: £451,655, increasing by 2.0%, which means an uplift of £8,853.
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