The price of flats is falling as first-time buyers leapfrog their way on to the second rung of the property ladder.

The average cost of a flat fell by 1.6% in the year to the end of April to stand at £199,018, according to the Land Registry.

By contrast all other property types increased in value, with detached houses seeing the biggest year-on-year gain of 2.7%, followed by semi-detached homes at 2% and terraced properties at 1.9%.

Property commentators attribute the trend to first-time buyers delaying the purchase of their first home, then buying a more expensive property further up the ladder when they do take the plunge.

There is also the suggestion that while young people are quite happy to rent a flat, they do not necessarily want to buy one.

Why is this happening?

Some of the fall in the price of flats can be attributed to the current absence of buy-to-let investors in the market.

But this trend has been playing out over the past two years, following a raft of government tax hikes that made the sector less profitable, and it is unlikely to account for all of the fall.

Instead, it is thought that first-time buyers who traditionally compete with investment landlords for homes at the bottom of the property ladder are also shunning flats.

With the average age at which people purchase their first home increasing, many are instead thought to be jumping straight to properties that would be suitable for a young family.

Who does it affect?

Reducing the number of steps they take on the property ladder is a smart move for first-time buyers.

The typical move involving a house purchase costs £12,000, according to Lloyds Bank.

At the same time, while first-time buyers are exempt from stamp duty on the first £300,000 of a property purchase, this tax break does not apply to those trading up the ladder.

As a result, delaying the purchase of a home until they can afford an average priced semi-detached house costing £216,938, will save first-time buyers £1,838.76 in stamp duty.

What’s the background?

One of the reasons first-time buyers are able to leapfrog a rung of the housing ladder is likely to be due to the range of initiative’s available to help them purchase a home.

Under the Help to Buy equity loan scheme, people can purchase a new-build property with just a 5% deposit, with the Government topping this up with a five-year interest-free loan.

With the typical semi-detached home costing 9% more than a flat, this loan would be enough in many areas of the UK to enable first-time buyers to purchase something higher up the ladder.

The Shared Ownership scheme, under which people can buy a share in a property of between 25% to 75% and rent the rest, also enables young people to afford to buy larger properties.

Properties in the wider postcode area of a Waitrose store in the UK sell on average for £1,220,296 – almost £1m above the average of £227,001 spent on a home in the rest of the UK.

Homes within quarter-of-a-mile mile of a Waitrose store also sell for £469,933 on average, according to research into Land Registry house sale numbers from Property Solvers.

The eye-watering premiums underline how having Waitrose as your local supermarket is often a clear indication of living in an expensive area.

While this fact may not be a surprise, the marked difference in average prices is noteworthy.

But whether homeowners hit the property price jackpot if Waitrose gains permission for a new store in their neighbourhood, is less clear.

Those believing in the ‘Waitrose effect’ might argue that when the supermarket opens a new branch, homes in the local area see their worth jump.

Others will contest that it’s merely a reflection of the supermarket chain moving in on already expensive areas which they think will be ripe for customers.

The research took the average values of 24,874 property sales over the last two years within a quarter-of-a-mile of stores across the country.

Thirty-six stores were excluded because of no nearby residential property, such as Little Waitrose stores that adjoin petrol stations and those as part of large shopping centres where property is almost exclusively commercial.

There were also areas where no residential properties within a quarter-of-a-mile radius were sold in the last two years. This left a total of 315 stores.

The sale price data of homes near stores was then compared to the average sold property prices within the same postcode area.

The data also found that just 19.4% of properties close to a Waitrose store are under the UK national average, and this drops to only 3.2% of properties in the wider postcode area.

The cheapest properties located close to a Waitrose store were found in Wolverhampton (WV2), Preston (PR5), Sheffield (S11), Northumberland (NE46)
and Northwich (CW9).

The most expensive properties located close to a Waitrose store were found in Central London in Belgravia (SW1X), Marylebone (W1U), Knightsbridge (SW3), Kings Road (SW3) and Notting Hill Gate (W11).

The Prime Minister has pledged to ban property developers from building tiny homes with inadequate storage space.

Theresa May is calling for the introduction of mandatory design regulations which set out clear national standards for new-build homes.

She warned that the current lack of universal standards was encouraging a 'race to the bottom' among developers.

Speaking at the Chartered Institute of Housing’s conference, she said: “I cannot accept a system in which owners and tenants are forced to accept tiny homes with inadequate storage.

“Where developers feel the need to fill show homes with deceptively small furniture and where the lack of universal standards encourages a race to the bottom.”

Why is this happening?

A ‘nationally described space standard’, which sets out detailed guidance on the minimum size of new homes, was introduced in 2015.

But the standard is not mandatory and not all local authorities insist on it being adhered to as a condition of granting planning permission.

As a result, some developers have been reducing the size of both properties and individual rooms in order to squeeze in as many units as possible on to a plot of land.

May warned the situation had led to an uneven playing field with different rules in different parts of the country leaving buyers and tenants facing a 'postcode lottery'.

Who does it affect?

The move is good news for people who want to purchase a new-build home as it should ensure developers meet minimum standards on space and design.

People using the Government’s Help to Buy equity loan scheme will be particular beneficiaries as they are limited to purchasing a new build property under the terms of the scheme.

But the move could lead to higher property prices, as if developers find they are not able to build as many units on plots of land as they had previously anticipated, they are likely to pass on this cost to buyers.

Given the length of time between when planning permission is granted and when new homes become available, it could also be some time before any change in the rules benefit consumers.

What’s the background?

May also used the conference to confirm the Government was pressing ahead with plans to end no-fault evictions, under which landlords can evict tenants with just eight weeks’ notice, and it would be publishing a consultation paper on the issue shortly.

She also revealed that by this autumn a million new homes would have been created in less than five years.

She said the Government’s reforms, including its £5.5 billion housing infrastructure fund and giving local authorities greater freedom to use brownfield sites, had made it easier for homes to be built in the right places.

But while the increase in the number of new properties being built is good news, the figure is still below the estimated range of between 240,000 to 340,000 new homes that are needed every year just to keep pace with demand.

Top 3 takeaways

• The Prime Minister has pledged to ban property developers from building tiny homes with inadequate storage space

• Theresa May is calling for the introduction of mandatory design regulations which set out clear national standards for new-build homes

• She warned that the current lack of universal standards was encouraging a race to the bottom.

Confidence in the housing market remains high with homeowners expecting property prices to increase by 4.8% in the coming six months.

Despite the recent slowdown in house price growth, 81% of people think property values will increase in their area, according to Zoopla.

But there was significant regional variation, with homeowners in Yorkshire and Humber most likely to predict further price rises at 91%, while a third of people in London expect house price falls.

Those in the northern regions tended to be more optimistic about the outlook for the housing market, while those in southern ones were most likely to expect a downturn.

Laura Howard, spokesperson for Zoopla, said: “Despite evidence of a slowing housing market and ongoing political uncertainty, homeowners remain optimistic about the future of property prices.”

Where are homeowners most optimistic?

Homeowners in Yorkshire and Humber were most likely to expect house prices to increase in the next six months at 91%, followed by those in the north west at 90.5% and people in Scotland at 90.3%.

People in Wales were also optimistic, with 89.5% anticipating further growth.

In terms of actual price growth, those in Scotland are expecting the biggest gains of 5.5% in the coming six months.

They are followed by homeowners in the north east at 5.4%, while people in the West Midlands and East Midlands think prices will rise by 5.1%.

Where do people expect to see house price falls?

Homeowners are least optimistic in London, where 32.8% predict house prices will drop during the next six months, losing an average of 6.7% of their value.

Those in the south east are also downbeat, with 26.1% expecting price falls of around 6.1%.

Despite this, there are still more people in these regions who expect the cost of property to continue rising than those who expect it to fall, with 67.2% of people in London and 73.9% of those in the south east expecting price rises.

The biggest price falls were predicting in the north west, where those who think property values will decline expect them to be 8.5% lower in six months’ time.

What’s the background?

Latest UK Cities House Price Index suggests homeowners may be too optimistic, with this showing property price growth had slowed to just 1.7% in the 12 months to the end of April across the UK as a whole.

That said, homeowners in Yorkshire and Humber who are predicting price rises of 4.5% are not too wide of the mark, with property values in Sheffield currently rising at an annual rate of 4.4%, while in Leeds annual house price inflation is running at 3.5%.

It is also no surprise that people in London are the least confident, with property values in the capital falling by an average of 0.5% during the past year.

Howard points out that even if consumers’ forecasts fail to prevail, sentiment still plays a crucial role in the health of the housing market.

She said: “A feeling of stability means buyers are more likely to start actively looking for their next home, confident that now is the right time to make a purchase. And, in turn, an active pool of buyers will encourage sellers to list their homes for sale.

“Measured confidence in the housing market is also more likely to see homes marketed at the right price which, by its nature, generates demand.”

Top 3 takeaways

• Homeowners expect property prices to increase by 4.8% in the coming six month

• 81% of people think property values will increase in their area, with people in northern regions more optimistic than those in southern ones

• Homeowners in Yorkshire and Humber are most likely to predict further price rises at 91%, while a third of people in London expect house price falls.

High rents are preventing young people from moving to better paid jobs with mobility nearly halving during the past two decades.

Only 18,000 people aged between 25 and 34 started a new job and moved to a new home in 2018, down from 30,000 in 1997, according to a report by the Resolution Foundation.

The group blamed the situation on the high housing costs young people face, which in many cases almost negated the higher salary they would earn by moving to a different part of the country.

It found that once housing costs were deducted, the average private renter moving from a low-paying area, such as East Devon, to a mid-paying area, such as Bristol, would be just 1% better off, compared with being 16% better off in 1997.

The situation was even more extreme for someone moving from a low-paying area straight to a high-paying one, such as Croydon. While young people would have seen a financial gain of 26% in 1997 for making such a move, last year they would actually have been 3% worse off.

Lindsay Judge, senior policy analyst at the Resolution Foundation, said: “Young people today are often stereotyped as being footloose when it comes to work. But in fact, they are moving around for new job opportunities far less frequently than they used to.

“A key reason why people move around for work is the lure of a bigger salary. But increasingly those pay gains are being swallowed up by high housing costs.”

Why is this happening?

The report found people were less mobile despite a higher proportion living in the private rented sector, which is traditionally associated with enabling mobility.

Instead, it said the high rents they faced paying meant moving to a better paid job in a more expensive location often did not make financial sense or reduced the lifestyle uplift they would receive.

It pointed out that rents have risen fastest in higher-paying areas of the country, increasing by almost 90% in these locations, compared with a jump of 70% in places where pay was lowest.

The Foundation noted, however, that there were also likely to be non-financial reasons why young people weren’t moving, such as preferring to stay close to their parents and local networks.

If you're coming to the end of your mortgage deal and looking for a new fixed rate, your main options will be to fix in for either two or five years.

Traditionally, five-year fixed rates have come with higher interest rates than those charged on two-year deals, as homeowners pay for the longer-term security.

But the difference between rates for the two mortgage types now stands at just 0.36%, according to new research from Moneyfacts, which is the lowest differential in seven years.

The average interest charged on two-year fixed rate loan is now 2.49%, compared with 2.85% for a five year one.

Darren Cook, finance expert at Moneyfacts.co.uk, said: “It seems that the intense competition between lenders within the two-year fixed rate sector is also appearing in the five-year fixed rate market, with the average five-year fixed rate falling by 0.06% more than its two-year counterpart since January this year.”

What are the pros and cons of each deal length?

The main advantage of a five-year fixed rate mortgage over a two-year fixed rate deal is that homeowners have the security of knowing exactly what their monthly mortgage payments will be for the next five years, regardless of what happens with the Bank of England base rate.

At the same time, they do not face the hassle or cost of having to remortgage after just two years.

With mortgage arrangement fees on a best-buy two-year fixed rate loan currently standing at £1,995, homeowners could save themselves a considerable sum by fixing for a longer period.

What else should borrowers consider?

While the gap between a two-year and a five-year fixed rate mortgage may have narrowed, five-year deals are still more expensive.

A homeowner with a £200,000 mortgage would pay more than £450 more per year if they opted for an average priced five-year deal compared to a two-year one.

The other downside of five-year deals is that homeowners are locked into them for longer.

While this may sound like good news if interest rates are rising, it can become expensive if your circumstances change and you need to sell your home.

While many fixed rate mortgages are portable, meaning they can be moved to a different property if you sell your home and buy a new one, if you want to exit the mortgage altogether, you can expect to pay a hefty penalty.

So-called early redemption fees vary between lenders, so make sure you know what you are signing up to when you take out your loan.

As a general rule, lenders typically charge the equivalent of the number of years left on the loan as a percentage of the mortgage that is outstanding.

For example, if you have three years remaining on your fixed-rate term and £150,000 in outstanding mortgage debt you will be charged 3% of this sum or £4,500.

What about 10-year deals?

The average interest rate charged on a 10-year fixed rate mortgage has also fallen since the beginning of the year to stand at 3% now.

Although the difference between rates on a five-year and 10-year loan has widened slightly during that period, borrowers still only pay 0.15% more to fix their interest rate for a decade.

As with five-year deals, opting for a 10-year loan not only gives greater certainty but also potentially saves a significant sum on arrangement fees.

But with early redemption penalties as high as 7% of the outstanding mortgage sum if you need to exit in the first two or three years, borrowers need to be confident they will see through the term.

Some 10-year fixed rate mortgages have lower early redemption penalties, so it is worth bearing this in mind and shopping around if you opt for one of these deals.

Top 3 takeaways

• The gap between the cost of a two-year fixed rate mortgage and a five-year one has fallen to a seven-year low

• The rate differential between the two mortgages is now just 0.36%

• The average interest charged on a two-year fixed rate mortgage is 2.49%, compared with 2.85% for five-year deals.