Are Flats Back On The Agenda As House Prices Soar And Pockets Run Dry?

Hello Readers,

The past few years has seen a great exodus from the city centres to larger, more spacious properties with more land, however with the now sky-high properties prices and soaring mortgage rates along with rents, it’s possible that we will start to see the opposite and demand for smaller properties rising.

I’ve seen how searches such as ‘bills included’ was recently highlighted as one of the top terms on Rightmove and you may be interested to hear that two-bedroom apartments are currently the most popular choice amongst tenants (with studio flats having overtaken one-beds in terms of demand).

Check out the data from Zoopla below that highlights this. The drop in demand for two and three bedroom houses really is quite stark!

I was interested to find however, that the most recent Homelet report outlined how three bedroom plus houses made up the largest percentage of properties let over the past year, however it certainly outlined how two bedroom flats make up a large chunk.

It’s important to remember that the Zoopla data is calculated on a share of demand over two months and the homelet report on the properties let over a 12 month period. It will be interesting to look back at the Homelet report at the end of 2023 and see if the trend has reflected in properties let over the whole year!

When it comes to rental rates, average annual growth for urban areas sits at 10.5% compared to 8.5% in more rural areas. It’s probably no surprise that rents in urban areas are rising faster as these areas will be more expensive in general, making flats a more affordable option compared to houses.

When it comes to the sales market, I’ve been reading about how an increasing number of older people are choosing to downsize to apartments to reduce bills.

I have also read that we’re likely to see a significant jump in competition from would be first time buyers, who were looking to purchase a larger property, but have their plans changed and now need to reduce their ambitions or look to rent.

It’s not just about house prices and rental rates, however. The eye wateringly high price of energy and uncertainty about what will happen when the price cap comes to an end coupled with increasing bills such as council tax and potential removal of the 2.99% cap on increasing council tax means that the cost of running a two or three bedroom house adds to the pressure.

What will we see over the coming year I wonder? Certainly, an increase in demand and continued reduction in supply is likely to mean that rental rates for flats will continue to increase.

The proposed changes in leasehold legislation and potentially lower costs in meeting EPC requirements could make flats ‘flavour of the month’ for a while. Whether this is just a temporary uplift or longer lasting is something we will need to keep an eye on!

Do you have flats as part of your portfolio or are you thinking of diversifying? I’d be interested to hear your thoughts on whether you are changing strategy to capitalise on this potential opportunity!

Hasan

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