According to the latest findings by Halifax, the UK property market has seen a significant increase in the early months of 2024, particularly in the prices of flats, which have risen faster than any other property type. This rebound comes after a period of sluggish growth, with national annual property price growth recording a modest +1.9% in February this year. This is a recovery from the -4.1% plunge seen in October 2023. In monetary terms, this equates to an increase of £5,318 over the last year, though prices still lag £7,801 behind the peak of August 2022.
The Shift in Demand From Spacious to Compact
The resurgence in property prices is largely driven by the stabilisation of interest rates and a subsequent increase in market activity. Smaller homes, particularly flats and terraced houses, have seen the most significant price increases as buyers adapt to the heightened borrowing costs and the ongoing cost of living challenges.
This trend marks a distinct shift from the ‘race for space’ phenomenon during the pandemic, where larger homes were more sought after. Now, the demand has pivoted towards smaller properties, especially among first-time buyers.
First-Time Buyers A Resilient Market
The first-time buyer market has shown remarkable resilience, despite overall numbers being lower than in recent years. In 2023, first-time buyers constituted 53% of all home purchases with a mortgage—the highest proportion since 1995. This group has predominantly focused on smaller dwellings, with flats and terraced houses making up 57% of their purchases last year. However, regional variations are significant, with these property types accounting for 90% of first-time buyer purchases in London, where prices are the highest in the UK.
Regional Highlights and Variations
The demand for flats has been particularly strong, with prices for these properties growing the fastest at the start of the year. In February, the annual growth for flats reached +2.7%, or a monetary increase of £4,290, with the average price now at £163,016—just slightly below the peak price of August 2022. Scotland led this growth, with prices for flats increasing by +5.9%, reaching £116,477.
Conversely, Yorkshire and Humberside was the only UK region to see a decrease in flat prices, with a decline of -2.9% over the last year.
Terraced and Semi-Detached Houses
The preference for smaller homes extends beyond flats. Terraced houses have also experienced a rise in prices, with an annual growth of +2.6%, amounting to £5,643, bringing the average price to £224,173. The North East has seen the highest rise in this category.
In contrast, semi-detached houses have witnessed the weakest growth among larger property types, with an increase of just +1.7% over the last year. Prices fell in several regions, including Eastern England, Greater London, and the South East.
Detached Houses
At the higher end of the property scale, detached houses saw an annual growth of +2.0% in February, with the average price standing at £451,655. Yorkshire and Humberside recorded the most significant increase among this property type.
Challenges and Opportunities
Amanda Bryden, Head of Halifax Mortgages, highlighted the complexities of the current housing market. The impact of higher interest rates on mortgage affordability continues to pose challenges, alongside a persistent shortage of new housing supply. However, the stabilisation of interest rates and strategic buying, particularly targeting smaller properties, offer pathways for adapting to the economic realities of home ownership.