Drop in value of leasehold flats (all types) in last 5-7 years - trend to continue?

[HangerLaneGyratorySystem]

Lets get straight in by saying I am not talking cladding issues, nor wanting to talk about moving to cheaper areas (I've done threads about affordability before and been told to move to Birmingham).

So I have been looking for a flat - I need to stay in this area to be relatively close to family and it's a wealthy area (Surrey) so freehold not affordable. Now you can look at "previous sale" values on Rightmove you can see that most flats have not increased in price or actually decreased since covid. So for example, a new build flat in show house condition sold in 2021 for £270k is now being offered at £275k, so with costs the vendors will have lost quite a bit. Maybe 20 other flats I can see listed, again this across the market so 1930s conversions to 2020s low rise 2 bed 2 bath apartments, bought for £300k, selling for £280k- just some examples to illustrate my point.

Initially I thought this was limited to landlords selling off stock in response to the new rental laws coming in soon, but the ones I am referring to are all being sold by a vendor - I always ask "is it tenanted" and the answer is always no.

Bearing in mind we have to have flats as housing stock, how might this pan out - so looking for opinions - will this trend continue? If I buy one of these flats at a loss to the vendor, maybe that seems great for me, but will I be in exactly the same position in 5 years? Is the issue in flats more marked than in houses (as they don't tend to change hands so much)?

It's far worse where I live, a decent size town in the NE. These are all second hand new build flats. Idk about cladding, but they're mostly 3-4 storeys high including the ground floor.

2006 - 167k
2025 - 95k

I know sod all about flats except I can tell you the average service charge when I looked in probably around April was no higher than £1,350 a year for a 2 bed (I specifically looked to respond to a thread on here), and when I went back to look again in August this year, most of them had risen to £1750 or more. Within six months.

I've seen at least four of these sorts of flats with similar price drops.

That's all I've got I'm afraid.

Thanks @KievLoverTwo that's all helpful to build up a picture. I should have said that of course, if service charges are rocketing then no one will buy/price will drop, but the flats I am looking at all have reasonable service charges, some have £1 ground rent. So I think I am being careful, but maybe not careful enough? Someone else has a good thread going about pitfalls to look out for when buying a flat so maybe there is a key issue I am missing in leasehold purchase in general.

There is a new build premium, so a second hand flat will usually be cheaper for a few years.
Also flat prices have been falling generally. More so for those with short leases, cladding issues, high service charges or where lots have been built so there is over supply.

I guess your question is whether to buy now, or wait for lower prices.

I can't see prices increasing which points to waiting. But rent is high and rising! So consider the trade off between the two.

I bought years ago and my mortgage was about the same as rent. Now it is half what rent would be, and I nearly own the asset.
The risk is big price falls, but you need somewhere to live. It'll cost one way or another.

It's finding that sweetspot of low ground rent, low'ish service charge that hasn't gone up much year by year and a good number of years left on the lease. Difficult to find. Smaller blocks run by the owners rather than the freeholder is not a bad position as you have some control.

When I sold my mother's flat in early 2021 we'd had to increase the number of years left on the lease as there were only 44! It cost about £30,000. I think 99 years were added so it took it up to 134 years. There were only 9 flats in the block and we took over management of it, which reduced the buildings insurance from £520 per flat a year to about £120 each (freeholder did nothing despite having this insurance). The service charges were only £20 a month, run by a 90 year old. It was to cover communal lighting, window cleaner and internal cleaners for the landings but they went during Covid and didn't return (not much to do anyway). The 90 year old had built up a kitty of £9,000, which paid for the solicitor to set up a company for the residents to run the block. Basically, we left it in a good position for the person that bought it - I think £100 a year ground rent, £20 a month service charge, £120 a year buildings insurance and 134 years left.

If you can buy somewhere with a share of the freehold you have more control. Everything I read though flats are depreciating. Don't buy new. Keep the above things in mind and press the estate agent about all fees as they won't always tell you upfront and you'll waste your time viewing flats when they'll suddenly tell you about some other fee. Speak to all the residents you can to try and find out more.

As Rollercoaster says it's a trade-off. If you don't have kids or plan on having kids then the low number of years wouldn't bother me. I knew someone in his 70s who had 40 or so years left on the lease. He said no point paying to extend it as he had no one to leave the flat to and he'd be dead within the 40 years anyway.

Do your research on who the freeholder is as well. They might be using a management company also. This all costs money. In the case of my mother's flat the freeholder was called Southern but the management company collecting the buildings insurance and ground rent was called Together, as far as I remember. Southern were absolute sharks. If we hadn't have taken over the management of the block they would have come in and started looking for work to do (loads of newspaper reports on them doing this on other flats they owned). They can say this, that and the other needs doing and we're using our builders, so no looking round for the best price. One newspaper report said they'd got some work done on a block of flats, can't remember where - Brighton maybe - and each flat owner had to pay £20k. One of the residents got other opinions and the builders said £6k each and some of the work wasn't necessary. I think you can challenge unreasonable costs through the court but who wants that hassle or cost.

Yes this downward trend is likley to continue. How long for depends on so many factors that its impossible to say. My opinion is that we probably have another 12 to 24 months of ticking downward but that really is finger in the air guessing.

In recent years there has been a lot more public awareness of the issues with leasehold. Firstly there was the ban on sale of new build house as leasehold in the news. More recently there has been talk of a government white paper intended to basically kill off leasehold and encourage the use of common hold instead. Leasehold flats will become more and more unattractive to flat buyers, who will hold out for a common hold one instead. So the downward trend in prices is likely to continue.

Should have had a vote option here! If the downward trend continues, then I'd be better off renting. I pay £1.5k a month, mortgage would be £1k a month - but then mortgage is fixed for 5 years whereas rent can rise. I'd pay, say, £7.5k in fees if I bought a leasehold. Importantly I might be looking to sell after 5 years. Will I incur so much in fees in first 5 years, and then lose equity value, that I'd be better off keeping my cash in the bank and waiting? The rental I am in is nice but not 100% ideal (all first world problems - it's first floor but I have a dog for example).

Am I using the right parameters to work it out?

Yes you are missing the effect introducing commonhold for new build flats will have on leasehold flats. They have not yet decided how to change properties currently held as leasehold to similar to commonhold, so there is uncertainty in the market.

Add to that the difficulties holding management companies appointed by freeholders to account for service charges that is too much uncertainty.

It makes buying flats uncertain but I suspect when the issues are ironed out there will be a leap in value. You are looking at least 5+ years I'd imagine.

The older flats in our village seem to increase in value because they are a good size. There is a shortage of houses to buy so for many people a flat is the only choice and also all they can afford. I think in some towns and cities there are lots of flats for sale as they have over built, I am thinking Slough and St Albans. I should imagine the south East is being particularly hit.

I think you are right @Advocodo too many flats built, lots of new high rises in bigger towns, but round here older flats also in same boat; it seems to depend on when they were last bought/sold - if it was fairly near to COVID prices seemed higher then, so for example, bought in 2018 for £300k, having to sell now for £280k. It doesnt seem to be the "newness" that's the issue.

I bought my flat for £190k in 2012. It’s maybe work £100k now. £200 fixed ground rent, and what started out as a £300 per quarter sensible service charge is now £1,200 a quarter.

I'm very sorry to hear that @GloryFades sounds like a crap situation - is there anything you can do/do you have a plan or do need to stay put?

We’re lucky enough we could afford to move and rent it out to covert the costs (just about).

I don’t really mind so much as we didn’t buy it as an investment it was somewhere to live and I don’t mind that being an actual cost. Cladding is what’s actually stopping us from selling at the moment as it’s not fully remedied, but I don’t think this is what is actually impacting value as it’s 99% done.

Have you considered moving somewhere cheaper? Say, Birmingham? You can't like your family that much.

Flat prices have been struggling since Brexit in London.

I personally wouldn't buy a flat unless I was getting on the ladder in my 20s & it was a sensible buy. Lots of my younger colleagues have skipped the traditional flat stage & gone for a house further out.

It will impact houses too as people won't have loads of equity from their flat purchase.

I read something (maybe in the FT) years ago that the traditional 3 bed semi will hold its value the most as families will want them & downsizers will want them too.

you wag @CountAdhemar ;)

@basinbasin I just sold my big 3 bed semi due to divorce hence I'm casting around as in this area my budget (or anywhere within travelling distance of my DDs) that means a leasehold flat. Actually I did post on there the other week saying I was considering Crawley - that's how bad things have got (hides and hopes no one from Crawley on thread ....)

Epsom?

Service charges are going up because of NI increases for staff/insurance increases/sinking fund needs to be greater precise of the increased cost of repairs and refreshments. Lots of government-imposed compliance.

Just popping back as someone commented on new builds losing value initially and they're right.

However, most of those flats I mentioned to you are 20-25 years old, so they've had more than enough time to recover.

None of the houses on one smart, very well located estate in question has lost nearly as much money as the flats.

I think the issue in my area is over-building. There are houses and flats going up in every direction around the town and when there's over-supply, the only way is down.

Secondly, I think there are maybe one or two companies who control most of the leaseholds who have just put them up massively - I even saw one S.C. of 1900 on one of those flats - I couldn't find it when I tried to look for it for you - but I recall it was on for 80 or 90k when it had sold over 15 years ago for something eye popping like 220k or 250k.

Nobody wants to pay 1900 a year SC on a 700 sq ft flat in the NE.

Sure, places like Harrogate and York maybe. But, not here. The town hasn't got enough going for it.

If I was risking my future on a 5 year purchase, I wouldn't take a punt on a leasehold flat. I'd rather move to a completely different area to buy a share of freehold flat - converted Victorian mansions, etc.

When (and if) the goverment come to deal with Leasehold Reform, it's going to be difficult and messy too.

They go and put all these laws in place to protect the working massif but their regulators are about as effective as chocolate teapots, so they'll only protect the most obstinate of people who are prepared to turn their lives upside down to fight for their legal rights.

What about renting a nice house, you handpick the flatmate as a lodger, split the cost, get a better kitchen and standard of living through that instead, maybe?

Watching with interest as trying to advise a good friend. Self-employed, nearly 60, poor health, no onward family. Lives in bungalow, no mortgage but VERY cash poor (can’t work much but no safety net). Surrey/Hampshire border where flats saturate the market. I’ve been watching them go down in value and have been gently advising him to sell and buy a ground floor flat. Sounds awful but it doesn’t matter if the lease is shorter, since there’s nobody to pass it on to. I’m no financial advisor but he’s tried equity release which was shockingly low. I just can’t be confident enough in the plan to be any more positive!

Too many blocks of flats were built anticipating continued demand for them as investments by Asian buyers. They are often much smaller than what is built in similarly densely populated countries like Netherlands and Germany so families & sharers just dont want to live in them. Plus they've been structured with leases intended to provide investment returns so have high lease and service charges.

They will probably continue to fall in price in real terms until they become affordable to younger workers on lower wages again, the way people used to buy a first small property in their early 20s

@KievLoverTwo I think you're onto something there; houses alongside flats on estates haven't lost as much (if any) value. And yes I am talking the whole range of flats from 20+ years old to less than 5. I can't take a lodger because I don't earn enough to buy a house big enough for a lodger.

@basinbasin I'm not far from Epsom, why do you ask?

@Fayaway I think that sounds like a good plan on the one hand, but then your friend might end up with service charges so they'd have gone from no housing costs as such, to a service charge. Depends where though as obvs some places are either share of freehold or very low service charges. Interesting you're noting a glut of flats on Surrey/Hampshire border though, not far from me.