UK house prices rise by more than 5,000 due to demand for smaller homes

Demand from buyers for smaller homes helped drive growth in UK house prices earlier this year. (Karl Hendon, courtesy of Getty Images)

UK house prices rose 1.9% in February, taking them up 5,318% over the past year. This means that properties are currently 7,801% short of the peak observed in August 2022.

Buyer demand for smaller homes helped boost growth in UK property prices earlier this year, according to Halifax.

Apartments and terraced houses accounted for 57% of all homes purchased by first-time buyers last year. However, this varies by region. For example, in London, which has the highest average property prices in the UK, apartments and terraced houses account for 90% of all first-time buyer purchases.

Apartment prices rose the fastest of any type of property at the start of the year.

The annual growth rate in February was 2.7%, an increase of 4,290% from last year. The average price paid was 163,016, which is just 5,551 less than the record high price for an apartment in August 2022.

Read more: 9 luxury homes to consider if money is no object

This may be a sign that the race for space is over, reflecting the high cost of living and high interest rates depending on the affordability level of buyers. Alice Haine, personal finance analyst at Bestinvest, said: “With interest rates remaining at 5.25% since August last year and inflation moderating but remaining high throughout 2023, people are finding their mortgage affordability levels are severely constrained. .” he said.

At a regional level, Scotland saw the biggest rise in apartment prices last year, up 5.9% (6,489) to 116,477.

In only one region of England did semen prices fall last year – Yorkshire and Humberside, where they fell by 2.9%.

Yorkshire and Humberside were the only UK regions where house prices fell during the period. (Jack Cousin via Getty Images)

Looking further back, at a national level apartments remain 11.9% (17,349) above pre-pandemic levels, with the East Midlands recording the biggest rise of all regions (18.7%, 20,923).

As interest rates stabilize and buyers adjust to the new economic reality of home ownership, one way to compensate for higher borrowing costs is to target smaller properties. “This is especially true among first-time buyers, who have proven resilient in recent years, making up the largest proportion of homes purchased with a mortgage in almost 30 years,” said Amanda Bryden, director at Halifax Mortgages.

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We are seeing this reflected in property prices in the first few months of the year, with apartment values ​​rising the most sharply, closing the growth gap to larger properties that existed over the past four years, she added.

Although the overall number of first-time buyers is lower than in recent years, they accounted for 53% of all homes purchased with a mortgage in 2023. This is the highest rate since 1995.

The trend towards smaller homes can also be seen in housing, with the average price paid for a terraced house increasing by 2.6% (5,643) on last year to now stand at 224,173.

Read more: Five essential financial documents you should never lose

In the Northeast, terrace house prices rose the most on an annual basis, rising 7.6% (8,938 units).

With demand for larger properties easing, semi-detached homes showed the weakest annual growth compared to last year, up +1.7% (4,797), with an average price now at 295,199.

Once again, the Northeast region showed the largest increase in average prices, rising 5.9% (10,381) per year.

However, average prices for semi-detached properties fell in three regions: East of England (-1.3%), Greater London (-1.2%) and South East (-0.8%).

The annual increase in single-family home size was +2.0% (8,853) in February, with an average price of 451,655.

Yorkshire and Humberside recorded the biggest increase in detached house prices last year, rising 5% (17,300).

See: London house prices fall 5% – but one borough is bucking the trend.

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