Flats 40% cheaper than houses: is now the time to buy?

What’s happened to the value of flats?

The value of flats hasn’t fallen. Zoopla’s latest report confirms flat prices have increased just over 10% in the last decade. The headline is how much more house prices have accelerated when compared. The average price of a house soared 43% in the same period.

How much cheaper is a flat?

When you look at the UK average, a flat costs £193,000, while a house costs £327,000. This does vary regionally. The average flat costs as much as £416,000 in London, while you’ll get change from £100,000 in the North East, where flat buyers pay an average of £86,000.

As a rule of thumb, houses cost almost twice as much as flats in almost every UK region (2.0 times or greater). The only exceptions are in London and Scotland, where a house costs 1.9 times more than a flat.

Why are flats so much cheaper to buy?

While a minority of flats are sold with a share of the freehold, most come to market as leasehold. That means a freeholder owns the land on which the flat sits and they grant the leaseholder the right to own the flat for a set number of years (the lease term).

The value of the flat generally drops with every year that passes and mortgage lenders don’t like short leases. They may refuse to loan on a purchase if the lease has 80 years or less remaining. Extending the lease is possible but it costs the leaseholder money.

Leasehold flats also involve higher conveyancing costs, ground rent, service charges and potential restrictions/covenants, if the flat is in a block. These extra costs and complexities mean the sales value can be adjusted downwards to accommodate.

What are the benefits of owning a leasehold flat?

There are some positive upsides in addition to a lower purchasing price and a smaller deposit required. Leasehold flats in blocks will have a property manager in charge. They’ll use the service charges collected to take out buildings insurance, make major repairs, provide communal facilities and service block aspects, such as lifts. Leaseholders generally only have to worry about the inside of their own flat.

Are flats tricky to sell?

There’s a common misconception that flats are slow or difficult to sell. Zoopla’s research blew this myth out of the water. Flats across the UK only take 8 days longer to sell than houses. We find genuine pricing and upfront information are key to fast flat sales. 

Are leasehold flats a risky purchase?

Zoopla was right when it said buying a leasehold flat isn’t a risk but it is complex. Once all the facts are gathered and the leasehold system understood, leasehold flats can become a secure place to call home, with an attractive, lower initial outlay. 

Is it true the Government is changing the leasehold system?

Reforms are underway and these will improve the prospects of leasehold flats, making them more attractive to buy and easier to sell. The Leasehold and Freehold Reform Act 2024 is already law. Leaseholders can now extend their lease from the first day they move in, rather than having to wait two years.

As the Act is rolled out, it will become easier and cheaper to extend a lease or buy the freehold, with the standard lease extension term extending to a mandatory 990 years. Changes to service charges, transparency requirements and the regulation of managing agents are also planned, following the results of a consultation.

Do the current leasehold reforms go far enough?

The current Government doesn’t think so and it has published the first draft of The Commonhold and Leasehold Reform Bill. Once approved, it proposes to:  

• Make it easier to switch from leasehold to commonhold

• Cap ground rent at £250 and reduce it to £0 over a 40 year period

• Ban ground rent on most new leasehold flats

• Reset the ground rent to £0 when some leases are extended

• Ban most new leasehold flats from being built

• Scrap forfeiture so leaseholders are not penalised for small debts

Find affordability with a flat

With reforms continuing to destigmatise leasehold, buying and selling flats will become simpler and cheaper. We also expect flat values to hold firm or potentially rise. We can create a sales plan for owners of leasehold flats, making sure your property is accurately presented to the market, and explain the system to buyers who are considering a leasehold purchase. Contact us and we can help.