‘Search for space’ still one of the factors creating record demand for homes
The effects of the COVID-19 pandemic on the housing market cannot be underestimated. Even after two years, the pandemic-led ‘search for space’ is one of the factors still creating record demand for homes. The market is also being boosted by office-based workers re-thinking where and how they are living amid more hybrid working models. But in some cases, as offices re-open, some demand is flowing back into city centres.
Couple this trend with a return of international demand and the more modest price rises in flats compared to houses over the last two years, and it’s clear why we are now seeing a record-high spike in demand for flats outside London, and the highest rate of demand for flats in the capital than at any time since the end of the first lockdown.
Rivalling record demand
Since the start of this year, demand for property has increased by 49% compared to the markets of 2018 to 2021, rivalling record demand seen during the stamp duty holiday, according to new research. But the pandemic still continues to shape the property market, with 2022 continuing to be focused on the pandemic-led search for space, and it’s three-bed houses in particular that are most sought-after.
The demand for three-bed houses outside London is driving this trend, being four times higher than the five-year average, becoming the most listed for sale. Geographically, the suburbs remain in the highest demand with Thurrock (Essex), and the suburbs of Birmingham, Glasgow and East London (Barking & Dagenham) all topping the list of most sought-after areas.
Sharp upward trajectory
As hybrid working continues to become the norm and city workers slowly return to offices, demand for flats is on a sharp upward trajectory, reaching its highest level for five years. Many estate agents are reporting that relatively modest price increases (2% for flats compared to 9% for houses) have helped reignite their popularity amongst many buyers.
Given the concentration of properties, the demand for flats is almost entirely unique to cities. In London it has reached the highest level for 19 months, with agents reporting an influx of overseas buyers from Hong Kong proving prolific in the flats market thanks to the British National (Overseas) visa rules.
Additional space by families
Despite unprecedented levels of demand for additional space by families and a sharp rise in demand for flats by office workers, supply constraints may have finally turned a corner. Whilst the total number of homes for sale is still -44% down on the five-year average, this is a rise compared to -47% at the end of 2021, indicating that new supply is indeed coming to the market.
Some prospective homebuyers may be spurred on to move, with many keen to lock in a home loan before interest rates start to rise even further – amidst expectations that the Bank of England will continue to increase the base rate further during 2022.
Competitive mortgage deals
Even so, the current levels of mortgage rates and bank base rates will remain low by historical standards, and the increased popularity of fixed-rate deals mean that many homeowners are protected from rises.
But even with recent rate rises there are still competitive mortgage deals, high volumes of accumulated savings and a desire for more space and greenery which is fuelling activity.
Apartments are also moving back onto the radar of buyers as lockdown restrictions have been lifted, which has created a temporary sweet-spot of extremely high demand.
The employment outlook for the UK is positive and while inflationary pressures are lingering longer than most people would like, there is no sense they will be permanent.
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 Research from Zoopla – New Year average measured over the past three years – demand for flats reaches highest level for five years, excluding London – 74% of borrowers hold fixed rate mortgage deals, according to UK Finance.
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