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  • Writer's pictureSarah Ruivivar

Tiny Homes, Big Interest: UK's Property Market Shift

Image credits: Tierra Mallorca / Unsplash

The UK's property market is seeing a surge in demand for smaller homes, driven by increased borrowing costs and a resilient first-time buyer market.


According to Halifax, annual property price growth hit 1.9% in February, a significant recovery from the -4.1% seen in October 2023.


The rise in interest rates over the past two years has led many potential home buyers to reconsider their options. Smaller homes, particularly flats and terraced houses, have seen the strongest price growth this year as buyers adjust their expectations to accommodate higher borrowing costs and the overall cost of living squeeze.


 

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First-time buyers have shown remarkable resilience amidst these changes. Despite a decrease in their overall number, they made up 53% of all homes bought with a mortgage in 2023, the highest proportion since 1995. Flats and terraced houses accounted for 57% of all homes purchased by first-time buyers last year, with the figure rising to 90% in London.


The trend for smaller homes is also reflected in house prices. Terraced properties saw an annual growth of 2.6% (£5,643), while semi-detached houses saw the weakest annual growth at 1.7% (£4,797). Detached houses, on the other hand, saw an annual growth of 2.0% (£8,853).


The shift in demand from larger to smaller properties is a clear indicator of how buyers are adapting to the new economic realities of homeownership. As interest rates stabilise and buyers adjust, targeting smaller properties has become a viable strategy to compensate for higher borrowing costs, particularly among first-time buyers.



 

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