The housing market in the UK has got off to a slow in 2023 with demand for cheaper, smaller properties on the rise as recession fears continue to wobble the market.
House price index appeared to show that buyers were holding off from entering the market and were biding their time to see if house prices and mortgage rates fell. A proportion of existing homeowners were waiting to see if sizeable price falls materialised and whether mortgage rates might fall back.
With 27 per cent of newer buyers opting for one or two bed flats – a five per cent rise from a year ago – as they face higher mortgage rates. In London, almost half of the demand is for one and two bed flats, up to 49 per cent from 42 per cent last year. By comparison, demand for three bed houses has fallen to 39 per cent from 44 per cent across the UK.
Much of the reason behind this shift is value for money. Outside London, the average one and two-bed flats listed for sale on Zoopla are roughly £100,000 and £150,000 cheaper respectively than the average three bed property, which would set buyers back by about £293,000. Demand rose slightly for one and two bed flats in London, but dropped for two bed and three bed houses, The London housing market has underperformed the rest of the UK in terms of house price growth for the last five years off the back of tax changes and the pandemic. In recent years, outer London and the suburbs have fared better than the more international inner London markets.
Higher mortgage rates have hit the buying power of all households but more so in the most expensive markets. The response has been for buyers to look for lower-value homes in London or further afield.
The largest growth in demand for flats can be seen in towns near London such as Slough, Watford, Chelmsford, Guildford and Dartford, where the price differential between a flat and a house makes it more affordable for buyers who work in London and might be able to work more flexibly. In London, house prices have exceeded £660,000, up 6.1 per cent from the previous year.