Record-setting house-to-flat price disparity soars to a 30-year peak, as per Zoopla data.
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Housing Market Analytics for 2025:
The housing market has kick-started 2025 on a high note, with purchase agreements on properties rising by a solid 10% over the previous year, as per Zoopla.
While there's a 0.1% drop in annual house price growth from 2% to 1.9%, it's mainly due to escalating mortgage rates and impending stamp duty increases.
On a positive note, Zoopla reports there's a 11% surge in the inventory of homes for sale compared to last year. Flats are driving the increase with a whopping 14% jump in the early weeks of 2025, as opposed to a more subdued 5% rise in the number of houses for sale.
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Zoopla reports that the average house value is now a staggering 67% higher than the average flat value – a 30-year peak. The average house value stands at £319,500, while flats average at £191,300.
Richard Donnell, Zoopla's executive director, opines that more people are looking to relocate in 2025 than last year due to rising earnings (up 6%) outpacing inflation. Although houses continue to be the preference, shrewd buyers might find investments in flats worth considering, given the relatively lower prices.
Valuing Flats vs. Houses – The Shift in Perspective:
Zoopla attributes the vast disparity between flat and house prices to a mix of factors. While flats offer value-for-money, the majority of first-time buyers outside London are drawn towards three-bed houses (up from 44% in 2017). Newer flats might be less appealing due to concerns related to leasehold charges and fire safety issues, despite the uptick in demand for one and two-bed flats.
Compared to houses, the average flat value has only increased by 7% over the past five years, while house values have surged by 24%. This imbalance in supply and demand has led to a 30-year high in the price gap between flats and houses.
Dissecting Regional House Price Growth:
House price growth has either stalled or slowed down across most UK regions in January. This trend mirrors the eroding consumer confidence following the 2024 Autumn Budget, as mortgage rates have inched up by 0.5% since September 2024, decreasing buyer power, states Zoopla.
Over the last 12 months, price growth reaffirms a north-south divide. Average prices have surged by 7.2% in Northern Ireland and 3% in the North-West, while house prices in London and southern England have increased only by 1% to 1.2%.
Forecasting House Price Trajectories in 2025:
The supply-demand imbalance along with the approaching stamp duty revisions are likely to moderate house price movements in 2025. From April, the tax break thresholds will be rolled back to their original levels of £125,000 for regular buyers (up from £250,000 currently) and £300,000 for first-time buyers (from £425,000).
Half of homeowners will end up paying an additional £2,500 as stamp duty per transaction, according to Zoopla. Thus, buyers may accommodate this extra cost by negotiating a joint increase in the purchase price with the seller.
Tom Bill, head of UK residential research at Knight Frank, reminds us that "demand is playing catch-up with supply in the UK housing market, which is putting pressure on prices."
In conclusion, the expanding gap between flat and house prices can be attributed to the ever-evolving market dynamics and differing buyer preferences. Nevertheless, definitive insights on the specific reasons driving this surge in the price gap between flats and houses are scant in recent reports.
- Investors keen on housing-market dynamics might find it interesting to note the discrepancy between flats and houses in terms of price growth, as reported by Zoopla, with the average flat value rising by only 7% over the past five years while houses have increased by 24%.
- Given the current market conditions, those interested in real-estate investing could consider a shift in perspective by looking into the relatively lower-priced flats, as suggested by Richard Donnell, Zoopla's executive director, particularly in light of the 30-year high price gap between flats and houses.
