House values are rising at twice the rate of flats — here’s why
February 2025 - The Times
The gap between the prices of flats and houses is widening into a chasm, with average house values in England and Wales rising at twice the rate of those of flats. The typical seller sold their house in 2024 for 31 per cent more than they bought it for five years ago, but it took the average flat owner ten years to see a 30 per cent increase in value, according to data from the estate agency Hamptons. Furthermore, the increase in value that a homeowner would achieve in ten years would take someone who owned a flat 20 years to achieve. “Increases in value ten years ago were generally much higher across the board. While a gap between flat and house sellers still existed, it was much smaller than it is today,” says David Fell, lead analyst at Hamptons. The market for flats was hot in the early 2010s but it has subsequently cooled; price growth for flats decreased by 0.8 per cent in the year to December 2019.
This was around the time that insurance premiums started to climb for mid to high-rise leasehold flats as more of them were found to be a fire risk after the Grenfell tragedy in 2017. Insurance costs are up 92 per cent in five years on average, according to figures released last year by the Property Institute, an association for property managing agents. These costs are typically rolled up with maintenance costs into the service charge, which is usually paid monthly or yearly.
High service charge costs make it more difficult for flat sellers to find a buyer able to get a mortgage, because lenders need proof that the purchaser earns enough to pay both the service charge and the monthly mortgage payments. Buying a flat also means that you are surrounded by neighbours on all sides, which can lead to costly disputes. A millionaire businessman lost a legal battlelast month to force his upstairs neighbours to repair creaking floors that he said were “torture” for him and his wife to live below.
Melanie Bartley, who is in her seventies, bought her flat in Clerkenwell in central London 22 years ago — but her high service charge means she doubts she can sell for a profit today. A retired academic, she bought the three-bedroom property in a mid-rise building for £420,000, but she struggled to find a buyer when she tried to sell it in 2014. She says: “Although it’s big and central and near the city of London, there’s a lot of social housing around it. Some of that housing is quite nice but the reaction we got was people didn’t like the sort of neighbours they would have. We had to reduce the price from £800,000 to £500,000, even though there are other flats in private blocks around here that are on the market for £1.5 million to £2 million.” Ten years later, she fears the market for her flat is even smaller because the service charge has risen from £1,500 a year to £8,000 a year, driven largely by insurance premiums as the flats have potentially unsafe cladding on one side of the building. The flat next door was on the market six months ago for £1 million initially, then it was reduced to £500,000 cash-only and it still hasn’t sold, Bartley says.
She adds: “We don’t have any children but will our heirs be stuck with this property, where they will struggle to sell it or they will have to pay £8,000 a year in service charges? How will that be valued for inheritance tax?” The pandemic has widened the gap in values. Prices increased for both houses and flats after March 2020, spurred on by the reopening of the market in May of that year with a stamp duty holiday. The rise in service charge costs clashed with a race for space and flats fell even further out of favour. Since March 2020, prices for flats increased 3.4 per cent on average over a 12-month period. But prices for houses have increased by 7.3 per cent. “This pattern of slower price growth for flats than houses over the pandemic holds across all UK regions,” Fell says. After the pandemic Dominic Ahern moved from his flat in London to a house in Dorset because he needed more space for him, his partner and son. He bought the one-bedroom, first-floor flat in Bethnal Green, east London, for £352,000 in 2015, when he was 33.
He put it on the market five years later for £400,000 on the advice of his estate agent; he originally wanted to market it for a “more reasonable” £385,000. “Then they cut the price too late before we got any serious offers, so it just wasn’t going to go through in time [to help them buy the house]. So we decided to rent it out,” he says. The rent has increased 26 per cent since, from £1,500 a month to £1,900 a month, but the property’s value has fallen to £350,000, according to his last remortgage. Ahern says: “I don’t even know if we’d get that much for it if we tried to sell it because it has combustible cladding issues and the service charge has gone up so much.” His yearly service charge has increased from £1,800 a year to £5,000, mostly driven by the increase in insurance premiums.
Hidden insurance commissions are currently the subject of a class action lawsuit and a government consultation. Ahern, who works as a chartered accountant, adds: “There’s very little accountability for the managing agents. The budgeting is very poor and it feels like they’re just collecting money but aren’t communicating what it’s for.”
The campaign group Free Leaseholders has been “besieged” by leaseholders unable to sell their flats. The lack of control around the costs of running them are at the root of their unpopularity, the founder Harry Scoffin claims. He says: “Not only are leasehold service charges unpredictable and uncontrolled, they are set by those with a vested interest in seeing these rise sharply year after year. It is no wonder that lenders are becoming jittery about financing purchases of leaseholds.” Flats have even fallen out of favour among investors. The share of buy-to-let properties that are flats has fallen from a peak of 41.8 per cent in 2017 down to a 14-year low of 29.6 per cent in 2024, Hamptons figures show. Flats can still make sense for some landlords, however, especially if they do not need to buy with a mortgage.
Typically flats are less expensive to buy than houses — dramatically so in high-value markets such as London and the southwest — but the rental yields are still higher for flats than for terraced houses in 83 per cent of local authorities in England and Wales. While London is home to many flats badly affected by the building safety crisis and high service charges, Sebastian O’Kelly, chief executive of the charity Leasehold Knowledge Partnership, highlights that the capital “also has a huge number of much older maisonettes and house conversion flats where capital values are pretty strong. It is really the only city in England where a lot of people live relatively centrally in old buildings. Elsewhere people moved out and then moved back into modern flats over the past 25 years.” The average length of a lease for a flat has increased from 125 years in 2019 to 140 years in 2024. This reflects longer lease lengths for new-build flats, which is dragging the average up. Fell says that “250 or 999 now tends to be the default”.
But it also shows more people are extending leases because there is still money to be made in renovating short-lease flats, especially in central London. Flats with less than 80 years left on the lease are £95,922 cheaper to buy on average than those with more than 250 years left, Hamptons reports. Modernising a short-lease flat can be one of the only ways you can make a healthy return in central London, “where many developers have left the market because profit margins are just too tight”, Chloe Leefe, director at the buying agency Aykroyd & Co, explains. Good advisers are key, however. “One must be mindful of not paying too much at the point of purchase and for the short lease. It can be very easy to fall into the trap of paying more than the property is actually worth,” she adds.
Politicians from all parties have promised to make extending a flat’s lease cheaper and easier. Last month, for example, the housing minister Matthew Pennycook abolished the two-year residency rule for buyers wanting to extend their lease. However, on January 31 freeholders won the right to take the government to court over its plan to ban ground rent increases and marriage value, both of which drive the cost of lease extensions up on the grounds it would violate their property rights. This case is due to be heard at the High Court in July.
Scoffin says: “If the government cares about growth, it would prioritise delivering its manifesto commitment to end this wealth-destroying leasehold system for good.”
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