"The market for flats is diverse and, in an affordability-constrained market, it seems that there are opportunities for canny buyers prepared to do their homework and weigh up the purchase of a flat rather than potentially waiting longer to buy a house"
- Richard Donnell - Zoopla
The latest data released by Zoopla this morning has revealed that the price of a typical home in the UK stood at £267,200 during January.
Sales agreed are up 10% year-on-year, as 11% more homes come to market
The sales market continues to register positive momentum, with all key measures of market activity running 10-11% higher than a year ago. The number of sales agreed is 10% higher, and the number of homes for sale is up 11% compared to a year ago, meaning there are now more buyers in the market.
Increased levels of housing market activity mirror other measures of economic activity, including robust earnings growth, higher retail sales and signs that consumer confidence is on the rise.
But while market activity continues to increase, the annual rate of house price inflation is edging lower. It increased +1.9% in the 12 months to January 2025, down from +2.0% in December 2024.
House price inflation continues to follow a north-south divide. Average prices are 7.2% higher in Northern Ireland and 3% higher in the North West. However, house prices across London and southern England have only risen by 1% to 1.2% over the last year.
House price inflation slowed across most regions of the UK in January. This reflects the sharp dip in consumer confidence in the wake of the Autumn 2024 Budget, and mortgage rates rising by 0.5% since September 2024.
Stamp duty impact starts to feed through
The moderation in house price inflation may also reflect buyers starting to factor in higher stamp duty rates.
From April 2025, half of homeowners will have to pay an extra £2,500 per purchase, while another third will pay up to this level. 40% of first-time buyers will also pay more stamp duty, up from 20% today.
Home buyers will expect to reflect this extra cost in their offers, typically looking to split the cost with the seller. In monetary terms, the differences are not large, but the overall impact of these stamp duty changes will keep house price inflation in check over 2025.
Surge in number of flats listed for sale
One notable trend emerging during the early weeks of 2025 is a double-digit increase (14%) in the number of flats on the market, compared to a more modest increase (5%) in the number of houses for sale.
A return to price increases for flats in 2024 has brought more supply to the market, with flats accounting for 1 in 4 homes currently for sale.
This increase in the number of flats for sale is running well ahead of the growth in new sales agreed (4%) and buyer demand for this property type, which is currently 1% of all buyers.
In contrast, the demand for houses is 16% higher than a year ago, while the available supply of this property type is just 5% higher. This mismatch in supply and demand explains why the value of an average flat has risen by just 0.5% in the last year, compared to house values which have risen 2.2%. That said, we don’t expect house values to rise faster, given the greater choice of homes for sale and the extra stamp duty costs for many buyers.
In most cases, flat-owners coming to market are facing smaller capital gains than house-owners.
Two in every 5 flats for sale (40%) have an asking price of less than £20,000 above the last purchase price, compared to just 6% of houses. Gains, even small, are not guaranteed though, with 15% of flats priced lower than they were previously purchased for.
Gap between price of houses and flats reaches 30-year high
The search for space over the pandemic boosted demand for houses, while concerns over the running costs of flats (e.g. service charges and ground rents) have acted as a drag on flat prices. Building safety is another factor impacting demand for some recently built flats.
The average price of a flat has increased by just 7% over the last 5 years, compared to house prices increasing by nearly a quarter (24%). Looking at data from a longer period, the gap between the price of houses and flats is at a 30-year high. The average price of a house (£319,500) is 67% higher than the average price of a flat (£191,300).
Growing preference for houses a missed opportunity?
While flats are looking like better value for money, buyers (especially first-time buyers) are still prioritising houses.
Zoopla data shows that in 2017, 44% of first-time buyers looking to buy outside London wanted a 3-bed house. This increased to 52% by the end of 2024.
However, demand for 1 and 2-bed flats has declined from 25% to 17% over the same period.
It’s surprising that more buyers aren’t looking at flats as an option for home ownership, given the pricing differential between houses and the cost of buying vs renting.
Among major UK cities, Zoopla has calculated that the monthly mortgage repayments on a flat are 43% lower than the cost of renting, while mortgage costs for a house are 22% higher.
The market for flats is diverse and, in an affordability-constrained market, it seems that there are opportunities for canny buyers prepared to do their homework and weigh up the purchase of a flat rather than potentially waiting longer to buy a house. The outlook for prices, future saleability and running costs are all important factors.
Outlook for 2025
The housing market remains resilient with more people looking to move home in 2025 and 2026 than this time last year. Average earnings growth of 6% over the last year, well ahead of inflation, is supporting buyer confidence and helping to reset affordability.
There has been a sizable increase in the number of homes for sale in the early weeks of the year, which is giving buyers greater choice and stronger negotiating power.
Alongside higher stamp duty costs coming in for many from April, we expect house price inflation to be kept in check at 2-2.5%, with above-average growth in more affordable markets outside southern England.
Tom Bill, head of UK residential research at Knight Frank commented, “Demand is playing catch-up with supply in the UK housing market, which is keeping downward pressure on prices. Sellers are motivated by the looming stamp duty deadline, a desire to act after the political upheaval of last year and growing financial pressures due to higher mortgage rates.
"Buyers have started the year in more circumspect mood as mortgage rates remain above their pre-budget level and the economic outlook remains weak. The higher proportion of flats coming to the market in part reflects the fact the stamp duty hike from April will have a greater impact on lower-value markets.”
Nathan Emerson, CEO of Propertymark, said, “With Stamp Duty changes across England and Northern Ireland due to take effect from April, we have seen an increased keenness from many people to complete as soon as possible, to typically save themselves around £2,500 pounds when purchasing an average priced property.
“The magnitude of house price growth does typically vary across different areas of the UK; however, with inflation now standing higher at 3%, we may see this influence base rate decisions over the coming months to help maintain overall stability within the economy.
"With an ever-growing population, all devolved governments must not only turn their attention to ensuring house building targets are delivered in the areas where there is a need but also ensure that the right type of homes is being built in line with the shift in buyer behaviour."
Tony Hall, Head of Business Development at Saffron for Intermediaries commented, “First-time buyers are racing to complete purchases before the stamp duty changes in April, and today’s figures really hammer that home. But even with an 11% rise in homes on the market, there remains a strain on the supply of new housing.
“The last time the UK built enough homes was in 1979 when social housing was a priority. Since then, we’ve consistently fallen short. Proposed changes to affordability tests, like including rental payments, could help more buyers enter the market but also risk driving up demand without enough homes to meet it.
“It’s clear the government is serious about the supply issue – they set out their stall last summer with the 1.5 million homes target. But it’s not just about building more homes. If we’re going to solve the supply issue, we need to think beyond traditional new builds and explore alternative routes to homeownership as well.
"For instance, there’s huge potential in repurposing underused commercial buildings in urban centres, making better use of spaces that are already there, meanwhile our research shows 64% of 18–24-year-olds would or already have considered pursuing a custom- or self-build project. Both present a valuable opportunity for brokers and lenders to expand their business and support borrowers in this specialist corner of the market.”
