The sales market continues to register positive momentum, with all key measures of market activity running 10-11% higher than a year ago, according to the latest data from Zoopla.
The number of sales agreed are 10% higher, and 11% more homes are for sale than a year ago, meaning there are more buyers in the market. 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.
While market activity continues to increase, the annual rate of house price inflation edged lower to 1.9% in the 12 months to January 2025, down from 2.0% in December 2024. House price inflation continues to follow a north-south divide. Average prices are 7.2% higher in Northern Ireland and 3% higher in the North West. Comparatively, house prices across London and southern England are only 1% to 1.2% higher over the last year.
House price inflation stalled or slowed across most regions and countries of the UK in January, which may also reflect buyers starting to factor in higher stamp duty from April 2025. Half of homeowners will have to pay an extra £2,500 per purchase, while another third will pay up to this level. Two fifths of first-time buyers will pay more stamp duty from April, up from 20% today. Home buyers will expect to reflect this extra cost in their offers, typically looking to split the cost with the seller. In monetary terms the differences are not large, but Zoopla expects the overall impact of these stamp duty changes will keep house price inflation in check over 2025.
The housing market remains resilient with more people looking to move home in 2025 and 2026 than this time last year. Average earnings growth of 6% over the last year, well ahead of inflation, is supporting buyer confidence and helping to reset affordability.
There has been a sizable increase in the number of homes for sale in the early weeks of the year, which is giving buyers greater choice and stronger negotiating power. Alongside higher stamp duty costs coming in for many from April, Zoopla expects house price inflation to be kept in check at 2-2.5%, with above-average growth in more affordable markets outside southern England.
Surge in flats being listed for sale
One notable trend emerging during the early weeks of 2025 is a double-digit increase (14%) in the number of flats on the market, with a more modest increase (5%) in the number of houses for sale. A return to price increases for flats in 2024 has brought more supply to the market, with flats accounting for 1 in 4 homes currently for sale.
The increase in the number of flats for sale is running well ahead of the growth in new sales agreed (4%) and buyer demand (1%) for this property type. In contrast, the demand for houses is 16% higher than a year ago, while available supply of this property type is just 5% higher.
This mismatch in supply and demand explains why the value of an average flat has risen by just 0.5% in the last year, with house values up 2.2% in comparison. Zoopla says it doesn't expect house values to rise faster, given the greater choice of homes for sale and the extra stamp duty costs for many buyers.
Most owners of flats coming to the market are facing smaller capital gains than owners of houses. 40% of flats for sale have an asking price of less than £20,000 above the last purchase price, compared to just 6% of houses. Gains, even small, are not guaranteed though, with 15% of flats priced lower than they were previously purchased for.
Gap between price of houses and flats at a 30-year high
The search for space over the pandemic boosted demand for houses, while concerns over the running costs of flats (e.g. service charges and ground rents) has acted as a drag on flat prices. Building safety is another factor impacting demand for some recently built flats.
The average price of a flat has increased by just 7% over the last five years, compared to house prices increasing by nearly a quarter (24%). Looking at data from a longer period, the gap between the price of houses and flats is at a 30-year high. The average price of a house (£319,500) is 67% higher than the average price of a flat (£191,300).
Growing preference for houses a missed opportunity?
While flats are looking like better value for money, buyers are still prioritising houses. Zoopla data shows that in 2017, over 2 in 5 (44%) of first-time buyers looking to buy outside London wanted a three-bed house. This had increased to over a half (52%) by the end of 2024. Demand for one and two-bed flats has declined from 25% to 17% over the same period.
Zoopla says "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 vs renting". Among major UK cities, it calculates that the monthly mortgage repayments on a flat are 43% lower than the cost of renting, while mortgage costs for a house are 22% higher. Zoopla added: "The market for flats is diverse and, in an affordability-constrained market, it seems that there are opportunities for canny buyers prepared to do their homework and weigh up the purchase of a flat rather than potentially waiting longer to buy a house. The outlook for prices, future saleability and running costs are all important factors."
