In February, the UK housing market demonstrated a notable increase, according to the Halifax, with average property prices rising by 1.9%, adding up to a £5,318 increase over the past year. This surge brought the average property value close to the peak seen in August 2022, now just £7,801 short of that high watermark. This upward trend was largely driven by heightened demand for smaller types of housing, such as flats and terraced houses.

First-Time Buyers Lead the Charge

Smaller homes were particularly appealing to first-time buyers. In 2023, flats and terraced houses constituted 57% of all homes purchased by this group. This trend was even more pronounced in London, where these types of properties accounted for 90% of all purchases by first-time buyers, driven by the city’s higher average property prices.

The Rise of Flat Prices

Flats saw the most rapid price increase at the beginning of the year, with a 2.7% annual growth which equates to a £4,290 rise, bringing the average flat price to £163,016. This price is nearing the peak recorded in August 2022, now only £5,551 lower.

Alice Haine, a personal finance analyst at Bestinvest, suggests that this trend may reflect an end to the “race for space” seen during the pandemic, as high living costs and interest rates have forced buyers to opt for smaller, more affordable homes. “With interest rates holding at 5.25% since last August and inflation, although easing, remaining high throughout 2023, people found their mortgage affordability levels severely constrained,” she explained.

Regional Highlights

Scotland experienced the strongest growth in flat prices over the past year, with an increase of 5.9% or £6,489, setting the average price at £116,477. However, Yorkshire and Humberside was the only region to see a decrease in flat prices, with a drop of 2.9%.

Looking at the broader picture, flats across the UK remain 11.9% (£17,349) above their pre-pandemic levels, with the East Midlands leading the pack, boasting an 18.7% increase.

Adjusting to Economic Realities

Amanda Bryden, head of Halifax Mortgages, highlighted the adaptation of buyers to the economic challenges of home ownership, particularly first-time buyers. “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,” Bryden noted.

Despite a decrease in the overall number of first-time buyers, they constituted 53% of all home purchases with a mortgage in 2023—the highest proportion since 1995.

Prices for Terraced and Semi-Detached Houses

Terraced homes also saw a price increase of 2.6%, or £5,643, over the last year, with the average price now at £224,173. The North East led this growth with an annual increase of 7.6%. Conversely, semi-detached houses showed the weakest growth among home types, with only a 1.7% increase, though the North East again saw significant growth.

Larger Homes Still in Demand

While there’s a clear shift towards smaller homes, larger properties like detached houses also saw growth. In February, detached houses experienced a 2.0% growth in prices, bringing the average price to £451,655. Yorkshire and Humberside saw a significant increase of 5% in detached house prices over the last year.