Demand among buyers for smaller homes helped to drive growth in UK property prices in the early months of this year, latest research by Halifax reveals.
At a national level, annual property price growth reached +1.9% in February this year, having plunged as low as -4.1% in October 2023.
In cash terms prices are up by £5,318 over the last year and are only £7,801 below the peak recorded in August 2022.
CHALLENGING
And despite the challenging economic environment house prices remain +19.9% (£47,573) above pre-pandemic levels. By comparison, in the four years prior to March 2020, they rose by just +13.4% (£28,027).
But analysis shows the rate of average price growth for different property types varies greatly, particularly at a regional level.
Smaller homes have recorded the strongest increases as first-time buyers battle higher mortgage costs and the cost-of-living, accounting for 53% of all homes bought with a mortgage in 2023 – the highest proportion since 1995.
Flats and terraced houses made up 57% of all homes purchased by first-time buyers last year but varied between regions.
In London, which has the highest average property price in the UK, flats and terraced homes accounted for 90% of all first-time buyer purchases.
BENAETH THE SURFACE
Amanda Bryden, HalifaxAmanda Bryden, Head of Halifax Mortgages, says: “It’s important not to gloss over the challenges facing the UK housing market.
“But scratch beneath the surface and there is a more nuanced story, one which shows that demand for different property types in different parts of the country can vary hugely.
“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. This is especially true among first-time buyers, who have proven to be resilient over recent years, and now account for the largest proportion of homes purchased with a mortgage in almost 30 years.”
Tom Bill, head of UK residential research at Knight Frank, says: “Not only do higher mortgage rates mean tighter budgets, demand for housing also becomes skewed towards needs-driven buyers.
“As a result, first-time buyers, growing families and people moving for work have driven demand in lower price brackets over the last year. Those in bigger properties or sitting on more housing equity tend to be more discretionary and some will be waiting for the appearance of more mortgages starting with a three.”
EXPENSIVE
Nathan Emerson, PropertymarkNathan Emerson, Chief Executive of Propertymark, adds: “Whilst it is a positive sign for those hoping to sell their homes that property prices are rising, the market is still overwhelmingly expensive especially for first-time buyers who are adapting their property choices based on current prices.”
And Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, says: “If people need to be in the office two or three days a week, it’s more likely their aspirations will be limited to smaller properties.
“In London, 90% of first-time buyer homes were either flats or terraced properties, suggesting a shift towards living closer to work.
“Naturally buying a home in the capital will constrain affordability even more, which is why a smaller property makes sense over something more spacious.”
