Although most property sellers in the past year made a substantial gain, a new analysis shows that flat sellers - many of them landlords - are four times more likely than house sellers to make a loss.
Aneisha Beveridge, head of research at lettings agency Hamptons, says: “Soaring house price growth has boosted the money owners have made when they sell. House price gains are primarily driven by two factors – the length of time people have owned and the point at which they bought and sold in the house price cycle.
“2022’s record breaking gains were boosted by Covid-induced changes, with a rising share of sales coming from larger family homes that were typically bought before the financial crisis. However, most of these profits are never seen by sellers as they are reinvested back into the housing market when they make their next purchase which has also increased in value.
“But house price growth hasn’t been distributed equally. Flat owners, in particular, have seen weaker price growth and are nearly four times as likely to sell at a loss compared to someone selling a house.”
Beveridge says that despite the uncertainties weighing on the housing market right now, and even if prices do fall, it’s likely that over 90 per cent of sellers will still sell at a profit.
But she then warns: “The other 10 per cent will mostly be flat owners who bought in the last five or so years. The shift away from recent mortgaged owners selling cheaper homes towards older, more affluent owners selling more expensive homes also looks set to push up gains among sellers again this year.”
Hamptons says that the average seller in England and Wales who sold in 2022 having bought within the last 20 years made a record gross profit of £108,000.
There are now 173 local authorities in England and Wales where the average homeowner made a six-figure gain when selling their home 87 per cent of which are in the South of England. In percentage terms, Welsh sellers are now making bigger gains than Londoners.
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They may make less, but they still make 💰. The big issue is a sale reduces the availability of rental stock and increases the crisis.
If they were Rented Homes the Government made six figure gains as well.
Traditional Flats can be disadvantaged and work out costly with Government Schemes favouring New Flats putting them on the back burner.
Leases are going to devalue your Flat especially when it goes below 80 years which doesn’t take long if it started at 99. Expense to extend and Services Charges can be high adding say £120. pm to the Rent.
As I said in a previous blog I bought one from a retired Accountant who had it for 9 years and sold it to me for only £2k more because it didn’t work out, so no Capital Gain on that one.
Anything leasehold is bad news
Totally agree. Got rid of mine last year. For same square footage of property it only broke even after 7 years, whereas equivalent house has gained about 40% in value.
Flats are complicated but can be good. So much of it depends on the wording of the lease and attitude of the freeholder or management company.
I've got 5 leasehold flats. Two ex Council which are fairly cheap on charges but can be incredibly slow to get any necessary building repairs carried out. One newly converted one with mid range charges but a novice head lease holder and very sketchy information about who is managing the building. The other two are older conversions and both had very short leases when I bought them. In both cases I extended the leases by an extra 90 years. The first one has an excellent freeholder and is exceptionally good on building maintenance. Very reasonable, fully justified charges. The other one has an awful freeholder and eye watering management charges. I very fortunately did a Statutory lease extension but 2 of the other flats went the negotiated route when previous leaseholders wanted to sell so the current leaseholders are totally stitched up with high ground rent and much shorter leases.
Then there are management issues regarding ASB or Airbnb. Some freeholders are better than others. Cheap flats are usually cheap for a reason. At the bottom end they are often owned by people who can't really afford to own a home. They may be OK with the mortgage payment but really struggle with the service charge. That can make building maintenance problematic.
I have a studio flat. The rent is high for the purchase cost. The property price has gone up about 40% in 9 years. Jo - roughly what is the cost to extend the lease, I have about 95 years left, is it worth extending the lease? The freehold is held by the local council and they will only entertain a formal request which will involve legal costs.
John - both of mine were down to 67 years when I bought the flats. The first one offered a 90 year extension when asked and charged £11000. The legal fees were around £1400. That one was essentially a negotiated extension and I was incredibly lucky the freeholder is a genuinely decent person (as I was completely clueless about the whole process).
The other one was a Statutory extension. The freeholder is a complete shark and had totally stitched up other leaseholders in the building. The actual extension cost £11600 but I also had to pay a lease extension advisor £1320 plus my valuer £720 plus their valuer about £850 and my legal fees of about £1500 plus their legal fees of more than that.
So around £18000 in total but it has added a lot more than that to the value of the flat. Also the negotiated option that freeholder was willing to offer would have cost £14000 and saddled me with ground rent of £350 a year and only extended the lease by 32 years.
If you still have more than 80 years left it is much, much cheaper to extend.
It's questionable if it's worth doing anything for about the next 10 years as there are talks of leasehold reform. I've still got about 90 years on both of my ex Council ones and won't be doing anything about extension for at least another 7 or 8 years.
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