Interest rates in the UK have been increasing, resulting in elevated mortgage costs for potential buyers. As a result of the changes brought about by these rising costs, there has been a decline in demand, especially for flats, as individuals perceive borrowing money to be a more expensive endeavour than it was previously.

The Bank of England’s choice to raise interest rates has been influenced by diverse economic factors, such as managing inflation and stabilising the currency. This means heightened monthly mortgage payments for prospective homeowners, which has the potential to potentially dissuade them from pursuing homeownership. The impact is particularly pronounced for first-time buyers, with increased costs rendering homeownership unattainable for a significant number.

The economic uncertainty experienced in 2023 is extending into 2024 and continues to influence consumer confidence. Individuals are exhibiting hesitancy in property investments due to the perceived unpredictability of the future, which in turn has a knock-on effect and impacts the property market.

Persistent concerns regarding the global economy, political instability, and potential alterations to tax laws and regulations contribute to this prevailing uncertainty. Prospective buyers are inclined to postpone significant financial commitments, such as purchasing a flat, in light of this uncertainty. This reluctance to invest has led to a sluggish market characterised by a reduced number of buyers and sellers, ultimately contributing to a decline in property values.

Challenges related to supply and demand often arise when new housing developments saturate the market with similar properties, causing a decline in the value of neighbouring flats. This surplus of options results in heightened competition among buyers, making it more difficult to sell flats at favourable prices. Sellers may find themselves engaged in bidding wars, having to reduce prices in order to attract interest. 

Furthermore, the property demand landscape is significantly influenced by location. Flats situated in sought-after areas, where housing availability is limited, tend to draw increased interest. The scarcity of available properties in these prime locations can lead to higher prices and a shorter time on the market. While selling a flat in these areas may grant you a smoother selling process, these high-demand locations are relatively scarce. In practical terms, flats are more commonly favoured in city settings and proximity to amenities, yet even in these scenarios, selling can be challenging if the market is subdued. 

The desire for personal outdoor space, initially fueled by COVID restrictions, continues to be a prevalent trend post-pandemic. Many flats lack significant outdoor areas, limiting their appeal. Additionally, the surge in the popularity of flexible working has prompted individuals to relocate from cities in search of more space for their budget. The cost of a city flat could be invested in a small house outside the city, providing garden space and a home office. Although some businesses advocate for a full-time return to the office, the enduring appeal of flexible/hybrid working motivates buyers to consider living outside the city, as commuting to the office once or twice a week is often feasible for many.

Mortgage interest rates experienced a significant surge throughout 2022 and 2023, propelled by the rising BOE base rate. You can observe the upward trajectory in this graph. The base rate, which remained at 0.1% for much of 2020 and 2021, has now surpassed 5%. It’s important to note that the base rate reflects the rate at which your local bank borrows money from the Bank of England. Your local bank then applies its mark-up to this rate before selling the mortgage to you. Consequently, depending on the loan-to-value ratio, you could be paying substantially more than the base rate.