Zoopla has released its latest UK house price index and it appears that things are looking up in the UK housing market. First-time buyers are very much returning to the UK market, representing the largest buyer group in 2022, and are already making up a large portion of the market this year. Moreover, they seem to be on the hunt for affordable homes at the lower end of the market.
Driving Demand for Apartment Living
Three-bedroom homes are still the most popular property type overall, making up 40% of demand from first-time buyers in 2023 (having fallen 6% from its peak in 2019). On the other hand, demand for one-bed flats has risen from 8% to 10% of the first-time buyer market.
Unsurprisingly this is most notable in the South East, where the income required to buy a three-bedroom home has increased by up to £12,150—driving more demand for one and two-bed apartments.
The rise in single-person households, young professionals, and couples without children is also bolstering the demand for smaller living spaces. These demographics are seeking out properties that match their lifestyle needs—functional, convenient, and more affordable, both in terms of initial outlay and running costs on an ongoing basis.
Green Shoots of Growth
While rising mortgage interest rates dominated the headlines in 2022 and the market adjusted after the stamp duty holiday, it seems that demand for homes is starting to stabilise.
Key indicators for the UK housing market reveal a consistent and enduring resurgence in demand, coupled with a steady increase in new sales. Although the rate of house price inflation is decelerating, the likelihood of a significant price readjustment remains quite minimal. Post-Easter, the demand for homes surged to its peak for the year, marking a 14% increase compared to 2019, although it is still 42% lower than the same period last year.
The inventory of available homes for sale continues to grow, currently standing at 66% more than the previous year. This increased supply of properties has enhanced the variety for prospective buyers and fuelled a rise in new sales. New sales agreements are currently 6% higher than they were in 2019, aligning with the five-year average. The market is well-positioned to achieve 500,000 sales in the first half of 2023.
The most robust performance in new sales agreements is seen in Scotland, the North East, and London. This trend corresponds to the appealing affordability ratios in Scotland and the North East. London’s appeal is driven by its muted price inflation over the past six years, which has subsequently improved affordability.
What’s Next?
It seems that the most adverse effects of the price adjustment thanks to increased mortgage rates appear to be behind us, but it continues to impact preference when it comes to property type.
As the population continues to evolve and lifestyle preferences change, the demand for 1 & 2-bedroom apartments is likely to remain strong, particularly as first-time buyers return to the UK market. While this doesn’t spell the end for larger homes, it does suggest a more diverse and flexible housing market in the UK.
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