The price of flats is rising at a higher rate than houses as mortgage costs jump and workers are ordered back to the office.
According to data from lender Halifax, the cost of buying a flat has been increasing at a faster rate than for bigger properties amid affordability constraints.
Halifax said that the findings show there has been a reverse in the “race for space” during the coronavirus pandemic as buyers sought out bigger homes.
In the year to February, the average price of a flat rose by 2.7 per cent, while the prices for semi-detached and detached homes increased by 1.7 per cent and 2 per cent respectively.
Buyers have been adjusting their expectations to compensate for higher borrowing costs, as well as coping with the general cost-of-living squeeze, the bank suggested.
The findings also come as workers return to the office. Four in 10 UK workers are now back in the office full-time, according to a study from Virgin Media, pushing up the cost of flats in big cities as workers try to reduce their commute time.
Amanda Bryden, head of Halifax Mortgages, said: “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.
“We see this reflected in prices for the first few months of this year, with the value of flats rising most sharply.”
Scotland has had the strongest growth in prices for flats over the past year, with a 5.9 per cent increase, Halifax said. Yorkshire and the Humber was the only English region to record a fall in prices for flats, of 2.9 per cent.
The squeeze on mortgage affordability due to higher interest rates has given many potential buyers pause for thought before making a move, Halifax said. But it added that, as rates have stabilised and activity has started to pick up, it is smaller homes that have recorded the strongest increases in price growth in the early part of this year.
According to Virgin Media, commuters returned to the office “in their droves” in 2023, with 52 per cent of workers preferring to work in the office and 39 per cent going in more frequently than in 2022.
Additional reporting by PA
