Flats are becoming a more affordable option with demand outpacing supply
The average UK house price reached £267,200 in January 2025, reflecting a 1.9% increase over the past year, according to property website Zoopla.
The market is expected to see further growth, with prices projected to rise by 2.5% by the end of the year. Housing market activity has picked up, with key indicators showing sales volumes and new listings up by 10% and 11% year-on-year, respectively.
“Increased levels of housing market activity mirrors other measures of economic activity, including robust earnings growth, higher retail sales and signs that consumer confidence is on the rise,” said Richard Donnell (pictured), executive director of research at Zoopla.
Despite this momentum, annual house price growth has slightly slowed, dipping slightly from 2% in December 2024 to 1.9% in January.
The latest Zoopla House Price Index also showed regional differences in house price growth. Northern Ireland saw the strongest gains at 7.2%, followed by the North West at 3%. In contrast, London and southern England recorded modest increases of 1% to 1.2% over the past year.
The slowdown in price growth across much of the UK is attributed to weakened consumer confidence following the Autumn 2024 Budget and a 0.5% rise in mortgage rates since September 2024.
Stamp duty changes affect buyer behaviour
Upcoming changes to stamp duty, set to take effect in April 2025, may also be influencing buyer behaviour. Under the new rules, half of homeowners will pay an additional £2,500 in tax per purchase, with another third facing increases of up to this amount.
“First-time buyers are racing to complete purchases before the stamp duty changes in April, and today’s figures really hammer that home,” said Tony Hall, head of business development at Saffron for Intermediaries. “But even with an 11% rise in homes on the market, there remains a strain on supply of new housing.”
According to Zoopla, around 40% of first-time buyers will be paying higher stamp duty, compared to 20% currently.
“Homebuyers will expect to reflect this extra cost in their offers, typically looking to split the cost with the seller,” Donnell said. “In monetary terms, the differences are not large, but the overall impact of these stamp duty changes will keep house price inflation in check over 2025.”
Flats market sees increased listings
Zoopla also noted a surge in the number of flats being listed for sale in early 2025. The supply of flats has risen by 14% year-on-year, significantly outpacing the 5% increase in houses on the market.
Flats now make up one in four properties for sale, as rising prices in 2024 encouraged more owners to list. However, buyer demand for flats has only risen by 1%, compared to a 16% increase in demand for houses.
“This mismatch in supply and demand explains why the value of an average flat has risen by just 0.5% in the last year, compared to house values which have risen 2.2%,” Donnell said. “That said, we don’t expect house values to rise faster, given the greater choice of homes for sale and the extra stamp duty costs for many buyers.”
Data also shows that many flat owners are seeing smaller capital gains compared to house owners. Two in five flats listed for sale have asking prices less than £20,000 above their last purchase price, while 15% are priced below their previous sale value.
The price gap between houses and flats is now at a 30-year high, reflecting long-term shifts in buyer preferences. Over the past five years, house prices have risen by 24%, while flat prices have increased by just 7%.
As a result, the average house price (£319,500) is now 67% higher than the average flat price (£191,300). The trend has been driven by a post-pandemic demand for more space and concerns about service charges, ground rents, and building safety issues affecting some newer flats.
Despite the widening price gap, buyer preferences continue to favour houses, particularly among first-time buyers. In 2017, 44% of first-time buyers outside London sought a three-bedroom house, rising to 52% by the end of 2024. Over the same period, demand for one- and two-bedroom flats dropped from 25% to 17%.
Zoopla data also suggests that buying a flat remains a more affordable option compared to renting. In major UK cities, mortgage repayments on a flat are estimated to be 43% lower than the cost of renting, while mortgage costs for houses are 22% higher than rental prices.
“It’s surprising that more buyers aren’t looking at flats as an option for home ownership, given the pricing differential to houses and the cost of buying versus renting,” Donnell said.
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