Sales

Missing sellers

Housing transactions hit decade-long highs in 2021 and 2022. But one group of homeowners has largely stayed put. People who have purchased flats in the past five to seven years have become progressively less likely to sell.

Only 9.4% of flats that came onto the market in 2022 had been bought within the past two years, against 17.7% that came onto the market in 2017. As a result, there were about 100,000 fewer home sales in 2021 and 2022 - that is 50,000 in each year. We forecast that there will probably be a similar number of ‘missing’ sales in 2023.

Traditionally, the owners of flats have moved on more rapidly. But this has altered significantly since the start of 2021. Now, recent flat owners relocate about as often as those with smaller houses. It is a change which reflects a wider trend. The share of all properties coming onto the market that were bought within the past five years has dropped from 38.2% to 32.1%.

Why are flat owners disinclined to sell? The values of many flats, particularly in most of Inner London and locations like Reading and Slough, are below their level of 2016-2017. A growing number of the owners of such properties may wish to sell, but they are being hindered by the prospect of receiving less for their home than they paid. Some are also constrained by their limited equity.

Over the past five years, the prices of houses have risen considerably, driven by the pandemic race for space. Such has been the widening of the price gap between flats and houses that the average detached house is now worth twice the average flat

Most of those selling a flat aspire to buy a house. But the struggle to secure the extra finance that is required means that more of these would-be sellers are staying put for longer in the hope of building up additional equity to bridge the gap.

When could flat owners expect to be able to move up the ladder as quickly as they did in the pre-Covid era? This depends on what happens to the price of flats relative to houses, and there are several reasons to suggest that this gap may be at - or even slightly past - its widest point and starting to close. As a consequence, more flat owners may feel able to move on.

Higher mortgage rates mean more first-time buyers may see flats as a way of purchasing a first home, creating more demand for such properties. The average mortgage repayments made by a first-time buyer with a 10% deposit have risen by 65% since January 2022.

At the same time, the premium placed on space in the pandemic era may begin to diminish, although this will depend on factors such as the number of people who are able to work from home, or wish to do so. Ongoing cladding remediation and leasehold reform may also enhance the desirability of flats and thus their prices.

More downsizing could heighten demand for flats too. Older Baby-Boomers may regard the wider gap between the values of flats and houses as an opportunity. There is evidence to suggest that downsizers will play a larger role in the market this year and next, with increases in fuel and council tax bills making trading-down more attractive. Covid also led to some households delaying their downsizing plans.

If the gap between flat and house prices that opened up so quickly at the onset of Covid begins to narrow, there is a sizeable cohort of sellers who have outgrown their home and need to move up the ladder. Any uplift in their typically low-level equity would be helpful.

But if the gap fails to close – or even continues to grow - most of these homeowners are likely to have no other option but to sit tight for longer, hoping for some boost to their financial position.