More flat owners staying put is weighing on the overall number of people moving home. Stagnating flat values since 2015/16 have played a big role, as have high interest rates which have increased the cost of trading up and reduced their ability to move. By the end of this year, we estimate that around 400,000 fewer flat owners in England & Wales will have moved home compared to a scenario where the value of their property continued to rise.
Over the past three years, flat sales have run 25%-33% lower than they otherwise would have if every seller could sell their home for more than what they originally paid. The reluctance among flat sellers to crystalise a loss, together with the higher cost gap between house and flat values since Covid, has emerged as the primary factor contributing to depressed sales volumes. Cladding and leasehold issues, whilst generally improving, have also played a role.
While some sellers are willing to accept a loss, many are not. Our analysis suggests that sellers facing a potential loss are approximately half as likely to proceed with a sale as those who can at least break even. This is particularly evident in the flat market, where around 75% of 2024 sellers achieved a price higher than what they paid for their home, compared to 90% of all sellers.
The decision to sell often hinges on the ability to break even or come close to it, with many flat owners testing the market before making a final decision. Approximately one in five people who bought a flat five years ago have marketed their home for less than they originally paid. This figure is even higher in London at 30%, followed by the South East at 25%, where the fall in flat sales is larger than anywhere else in the country.
The numbers paint a picture of the challenges faced by some flat owners in the current market. The share of flats marketed for less than their original purchase price has been steadily increasing since 2015, with the figures being particularly high for those who purchased in 2017 and 2019. This trend underscores the difficulties some flat owners face in getting back what they paid, leading to a significant number of potential sellers holding back from the market.
Since 2018, average house prices have risen by 28%, while flat prices have lagged behind at 13%. However, in some parts of southern England and for some types of flats, average prices have fallen over this period. This has made it challenging for some of those households hoping to move, particularly when house values have mostly continued to rise over the same period.
Looking ahead, pent-up demand from flat owners is likely to gradually unwind, slowly driving up transaction levels. This recovery will primarily be market-driven, with numbers buoyed by some price growth across the south of the country as interest rates fall. Additionally, leasehold reform is expected to make some flats a more attractive proposition, further contributing to the market's recovery.
