COVID-19, mortgage rates, help-to-buy, and the Grenfell Tower fire are some of the reasons why flat prices fell further and further behind in recent years, according to experts in the housing market.
The Epoch Times’s analysis of HM Land Registry property data in the past decade found that the rate of price inflation for flats in England and Wales began to slow at around 2017.
Although the growth gathered pace again after 2020, it was weak compared to house prices, which increased much faster across Great Britain.
Lockdowns, Fire, and Leasehold
Richard Donnell, executive director at Zoopla, said “the desire for home buyers to buy larger homes over the pandemic in the ‘race for space’” has been the “primary driver” of flats’ under-performance in recent years.“This saw greater demand for 3+ bed houses, which has pushed prices ahead,” he told The Epoch Times in an email.
In Scotland, the average flat price in Sept. 2019 was 22 percent higher compared to September 2013 and prices of houses grew at similar rates. The average price of semi-detached houses also increased by 22 percent during the period, and the prices of detached and terraced houses went up by 19 percent and 21 percent, respectively.
By September 2023, Scotland’s average flat price was 44 percent higher than it was a decade ago, while average house prices grew by between 54 percent to 62 percent.
Similar trends of widening gaps were also seen in England and Wales. However, flat markets in England and Wales had begun to weaken around 2017, data suggests. The change was more stark in England, where flat prices had been growing faster than house prices.
Mr. Donnell said he believes “factors such as leasehold uncertainty, cladding concerns for newer buildings, and ongoing service charges and other costs” are also among the suspects that weakened flat prices.
On June 14, 2017, the Grenfell Tower, a 24-storey residential block, went up in flames following a fridge-freezer malfunction, killing more than 70 people.
The tragedy exposed the issue of inflammable cladding materials in residential buildings. The following tug-of-war over who should pay to replace such materials also put a spotlight on England and Wales’ unique leasehold system, in which most flat owners don’t own their homes outright but have a tenant-landlord relationship with the freeholders.
According to Harry Scoffin, founder of the campaign group Free Leaseholders, a woman who had bought a leasehold flat for around £230,000 was asked to pay £220,000 again to replace the cladding in the building.
Leaseholders don’t have control over the choice of management company or insurance company. As a result, a young woman was left in “crippling debt” after selling her flat at a £50,000 loss as “no buyers wanted to touch it” due to high insurance costs, Mr. Scoffin told The Epoch Times.
David Fell, senior analyst at Hamptons, said prices of some property can be depressed because of leasehold.
Mortgage Rates and Policies
However, Mr. Fell believes other factors may have led to the gap between houses and flats markets in the recent years.“Given that flats have long been leasehold, it’s our view that it’s pretty unlikely their leasehold status has any impact on relatively short-term price changes. Rather, we think there are a few things that have happened in the market that have led to flat prices to grow more slowly than house prices between 2017 and 2022,” he said in a separate email.
“First and foremost, the drop in mortgage rates since 2017, particularly for those with small deposits, has made it more affordable for first-time buyers to skip a step in the ladder and make their first home a house rather than a flat,” he said.
The government’s Help to Buy Equity Loan may also be a contributor. According to Mr. Fell, Hamptons estimates around half of the people who took out the loan used it to “trade up to a larger property” so they don’t have to move again soon in the future.
Policy changes in the rental markets didn’t help flats either, as new landlords “disproportionately buy flats,” he said.
“Over the same period, we’ve also seen relative weakness in landlord purchase numbers given the introduction of the 3 [percent] stamp duty surcharge in 2016.
He also said some cyclical effects may also have contributed to the gap.
Turning Tide
According to Hampton’s analysis of data from the Office for National Statistics, seen by The Epoch Times, the percentage of local authorities where flat values are rising faster than house values have hiked this year.Between January 2018 and February this year, the figure was mostly zero across Great Britain, except a few months when it was 1 percent or 2 percent. The share climbed up to a peak of 23 percent in June before falling back down, ending up at 12 percent in September.
In London, the figure fluctuated between 0 percent and 3 percent between January 2018 and February this year, before shooting up to a peak of 79 percent in May. In September, the figure was 52 percent.
“In less affordable markets in particular, higher mortgage rates have pushed first-time buyers towards flats and away from houses. While the end of Help to Buy last year has done a similar thing,” Mr. Fell said.
