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End of pandemic-era 'race for space' as demand for buying houses slumps

estate agent window - Dan Kitwood/Getty Images
estate agent window - Dan Kitwood/Getty Images

Demand to buy houses is falling more sharply than for flats, in a reversal of the pandemic-era “race for space”, as sky-high mortgage rates hammer affordability.

The number of inquiries from prospective buyers has dropped by 47pc for houses since the mini-Budget in September, compared with a 42pc slump for flats, according to the property website Zoopla.

The biggest plunge in demand for houses was in the South East, where inquiries tumbled by 52pc. The decline for flats was 45pc. In London and the West Midlands there were also large falls in inquiries for houses for sale.

The biggest gap in demand between houses and flats was in the North East, with slumps of 33pc for houses and 11pc for flats.

Agreed sales for houses have been 16.5pc lower this month than they were during the same period in 2019, compared with a 1.6pc drop for flats, according to separate data from TwentyCi, an analyst.

Mortgage rates spiked following the market backlash to the mini-Budget in September. Before then, the average five-year fix was 4.75pc, which then peaked at 6.51pc on October 20, according to analyst Moneyfacts.

Now, the average five-year fixed deal has fallen below 6pc. The sharp rise in the cost of borrowing has severely limited how much would-be homeowners can offer, dampening demand for more expensive properties.

The average house costs 35pc more than the average flat, which is the largest gap since records began in 2005, according to Capital Economics, a consultancy.

It marks a turning point in the property market. The market for flats, particularly those without outdoor space, slumped during the pandemic as houses with more space soared in popularity.

Prices for detached houses have increased by more than a third (30.4pc) in the past three years, while for flats they have risen by just 13.6pc during the same period, according to the Centre for Business and Economic Research, a think tank.

Richard Donnell, of Zoopla, said: "The demand for flats has been weaker than houses over the pandemic so demand has less far to fall.”

Karl Thompson, of CEBR, said he expected prices to fall more sharply for houses than flats over the coming months.

He said: “Alongside the race for space, improved affordability driven by low borrowing costs and government incentives may have brought many otherwise prospective flat buyers into the more expensive market for houses during the pandemic, exerting particular upward pressure on house prices.”

Mr Thompson added: “Sharply rising borrowing costs and a move of workers back towards urban centres may currently be causing a particular blow to house prices, in a market that has further to fall.”

Andrew Wishart, of Capital Economics, said the preference for space “may be softening a little” as workers are increasingly expected to be back in the office for two to three days a week.

He said: “The sharp rise in mortgage rates has led to a big jump in the cost of buying with a mortgage, so prospective buyers determined to get on the ladder will have to economise on space in order to afford to buy.”