The UK property market is experiencing a significant increase in the number of flats being sold by landlords, driven by declining profits and stricter regulations. Data from estate agent Hamptons indicates that 26.7% of flats currently on the market were previously rented out, a notable rise from 16.3% at the same point in 2018. While landlords are also selling other types of property, the increase is less pronounced for houses.
Factors contributing to landlords offloading their properties include increasing mortgage costs, higher annual service charges, and associated maintenance expenses. Additionally, many have seen weak capital growth and rental returns on their investments, particularly those who purchased flats over a decade ago as retirement investments. In some city center developments, a substantial portion of available apartments are landlord-owned, leading to an oversupply.
This situation is compounded by other market dynamics. Some owner-occupiers are also looking to sell apartments due to leasehold issues and climbing service charges, but are struggling to find buyers. Furthermore, flats in certain buildings are only now becoming available for resale after cladding remediation work following the Grenfell Tower disaster.
For example, in Birmingham's B1 postcode, 61% of flat sellers have incurred a loss over the past 12 months, according to PropertyData. In London, one-third of flats on the market were previously rented. Estate agents report that landlords are seeking to exit the buy-to-let market, with some amateur landlords finding it unprofitable due to new legislation like the Renters Rights Act, high post-Grenfell service charges, and other escalating costs.
The demand for flats has also weakened considerably. Investor interest has fallen, with the proportion of flat buyers who are investors dropping from 24% in 2016 to 13.3% in 2024. The market for holiday flats and pied-à-terres has also waned, partly due to a 5% stamp duty surcharge and the requirement to pay double council tax.
Consequently, the flats market now relies predominantly on first-time buyers and home movers. However, these groups are increasingly hesitant towards flats due to concerns about leasehold arrangements and the burden of service charges. Many new flats built from the late 1980s to around 2016 were designed for investors, featuring amenities that commanded higher rents. With fewer landlords, these properties are now primarily marketed to owner-occupiers. However, rising maintenance costs for these amenities, coupled with owner-occupiers' caution about these bills, has depressed property values.
First-time buyers are also being deterred from flats, with some struggling to secure mortgages or choosing to skip starter flats altogether, saving longer to purchase houses to avoid stamp duty. The price of flats has seen modest growth, increasing by just over 10% since 2016, compared to a 43% increase for houses during the same period. Many flats are also being sold after significant price reductions, with 22% of flat sales involving a reduction of 10% or more, versus 13% for house sales.
Industry experts suggest that a significant improvement in the flats market is unlikely until interest rates, and consequently mortgage rates, decrease substantially, thereby restoring confidence for both buyers and landlords. Recent inflation, partly attributed to geopolitical conflicts, has reversed earlier hopes of interest rate cuts by the Bank of England, leading to higher borrowing costs for those remortgaging or purchasing property.