Some home buyers’ preferences appear to be shifting towards flats as the cost of running a home has increased, according to a property website.
With mortgage rates having climbed in recent months alongside other household bills, Zoopla said more than a quarter (26.8%) of new buyers are looking for one or two bedroom flats, up from 22.2% in January 2022.
Houses with three bedrooms remain the most in-demand property type, according to the website, with 38.9% of new buyers looking for them, although this proportion has fallen back from 43.7% in January 2022.
The proportion of people looking for three bedroom flats has edged up slightly over the past year, from 3.4% to 3.7%.
Demand for four bedroom homes appears to be holding up, with 14.0% of new buyers looking for these properties, up from 13.5% in January 2022.
A proportion of existing homeowners are holding back waiting to see if sizable price falls materialise and how far mortgage rates fall back before entering the market
Richard Donnell, Zoopla
Zoopla suggested that buyers are looking to make their budgets stretch further.
Outside London, the average two-bedroom flat listed for sale on Zoopla, at £196,000, is nearly £100,000 cheaper than an average three-bedroom home (£293,000).
The website said some of the biggest increases in the proportion of demand for flats have been in towns which are within commuting distance to major cities, including in places such as Slough, Watford, Huddersfield and Stockport.
It used data from its own website to make the findings, based on would-be buyers contacting estate agents to ask about and arrange viewings for homes listed on Zoopla.
Zoopla also suggested that more people may look to downsize to a smaller property with cheaper running costs in the months ahead, which may help to support housing market activity in 2023.
Richard Donnell, executive director at Zoopla said: “The first few weeks of the year have got off to a stronger start than might have been expected given how market activity stalled at the end of 2022.
“There has been a clear shift towards flats as the early buyers focus on value for money and adjust expectations given the hit to buying power from higher mortgage rates.
“A proportion of existing homeowners are holding back waiting to see if sizable price falls materialise and how far mortgage rates fall back before entering the market.
“We believe demand for homes has room to improve further in the coming weeks.
“Anyone serious about selling needs to be realistic on the asking price and needs to ensure this is in line with what buyers are prepared to pay.”
Tom Ashwood, director of London agency Tom Ashwood Real Estate said: “It is apparent that a large portion of our buyers are not prepared to risk overspending and therefore have reduced budgets accordingly.
“This, in my opinion, isn’t isolated to the housing market but the wider cost-of-living crisis that has been heavily publicised.
“I will say that the appetite to buy is most certainly still there.
“Managing expectations for all sellers is a vital component to achieving sales in the present market and honesty really is the best policy.
“The demand will automatically subside where buyers do not see a reflective price for a property that they are viewing versus what their expectations are – and when an agent lists a property at a higher price to appease the seller and win that business.”
Sarah Coles, senior personal finance analyst at financial services company Hargreaves Lansdown said if some buyers can negotiate a decent price cut, they may be prepared to take the plunge.
She added: “However, others will still want to steer clear in a falling market.”