Buying a flat: stepping stone or millstone?

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1:05Visit schwab.com to learn more. Hello. Today on the Moneybox Live podcast, we're asking, is buying a flat a stepping stone or a millstone? It's just not moving. There's so many flats on the market. I think there's about 10 flats on the market just in our block. Because it can sometimes feel like issues with flats haven't been out of the headlines over the last few years.

1:33Sweeping changes to the leasehold system in England are being promised by the government, including possibly abolishing it altogether. Cathy Robertson's apartment is shrouded in scaffolding, her balcony blocked. It's leaking rainwater too. The government has announced an extra£3.5 billion to pay for the removal of flammable cladding from high-rise flats in England. And all those problems feed into an even bigger issue, value. The gap in prices between flats and houses has hit a 30-year high. That's according to the property platform Zoopla. And so far this year, two-thirds of one - and two-bedroom flats that have been listed for sale haven't been sold.

2:18Let's start by hearing from Hayley. She's in London and she's trying to sell the flat she bought three years ago. It's been on the market for 12 months and it still hasn't sold despite her dropping the price twice. We bought it for£4.65 and we originally put it on the market at£4.70 and then we dropped it for£4.60. So you're trying to sell it for less than you bought it for? Yeah, and yeah, it's just not moving. There's so many flats on the market. I think there's about 10 flats on the market just in our block. What does this mean for you, for your life plans, for the reasons you want to move?

2:52We want to have a family and we want to be near my parents. And it just means that we're having to kind of deal with the fact that we might have to stay in Greenwich, where it's not too far away from my parents, but like it's like an hour train journey. They're back, they're not around the corner. And I'm a bit worried that I'll be quite lonely in Greenwich. But yeah. What would you say to someone who's considering buying a flat as a first home? If you're buying specifically for the reason that it's going to be like a short buy away of getting on the ladder and eventually getting a house, it may actually be more beneficial to rent a flat and then buy a house when you can afford it.

3:37Because I just don't think it's the same as it has always been. Like a flat is definitely going to make you be able to buy a house one day. I just don't think that's how it works anymore. Well, we've also heard from Amy Booth, who's been thinking about what kind of property to buy. I have been living abroad for a decade and I returned one month ago and my partner and I are currently thinking about buying our first place. At the moment, we're trying to decide whether it would be a better idea to buy a flat somewhere in London, which might be more accessible for work and for commuting and things like that, or whether we should try to bite the bullet and go for a house.

4:18We were thinking that we were falling behind our friends in this sense because a lot of them bought while we were away. But we're now starting to think that we've dodged a bullet because of the issues with service charges, expenses and people being unable to sell small flats. So do you feel that it's not just that you'd rather live in a house, you actually feel that a flat might be not so much a stepping stone as a millstone? Yeah, exactly. We're seeing all of these figures coming out about the numbers of small flats that people are actually either selling for less than they bought for or unable to sell at all.

4:52So when it comes to whether you buy a flat or a house, is it just that you think maybe a flat would have been a bad financial decision? Or is it that you also want what comes with a house, maybe a little bit of a garden, maybe a little bit more space, an upstairs and a downstairs? I think that the dream really is to be able to live in a space where you have green space, where you might be able to perhaps have a family and where you just, as you said, have an upstairs and a downstairs and a place to call your own where you don't have to worry about noise coming up from below, noise coming in from above, leaseholds, freeholds and all the stress that goes with that.

5:30Well, thank you to Amy and to Hayley for sharing their stories. Let's put those points to Richard Donnell, who's Executive Director of Research at Zoopla, the online property platform. Richard, good to have you with us. Hayley and Amy are two sides of the same coin, aren't they? You've been looking at the data of this. It is a struggle right now to sell a flat. That's right. I mean, flats are taking longer to sell than houses. I think the key thing here, though, is many flats are also owned by landlords who have those properties rented out. And so those landlords, unlike a homeowner looking to sell a flat, might be under a lot less pressure to sell.

6:04So, you know, what we see is when properties are listed for sale, have been previously rented, quite a lot of them stay rented. So people are testing the market. But that's no that's no help to you if you're a, you know, someone who wants to actually move on and buy a house. Yes. If you're Hayley, I mean, what else might be factoring into this? What's making Amy or people in Amy's position kind of back away from flats? Well, I think there's a lot of uncertainty around flats. I think, you know, attitudes changed over the pandemic. People prioritise space. It seems that first-time buyers increasingly, if they can afford to buy a house, they'd almost like to jump the market for flats.

6:43That's possible outside of London and the big city centres. So we see that half of our people applying to agents to buy properties outside London are looking to buy houses rather than flats. But in the higher value markets, in particular London, You know, 70 % of first-time buyers don't want to buy a flat, but there's a lot of uncertainty around running costs, ground rents. There's a lot of tales of things that aren't going so well in this market. And the whole sector almost gets these concerns attached to them when not all flats are the same. What about issues, though, like replacing flammable cladding?

7:17Is that also feeding into this change in the market? No, I think absolutely. And I think it links to the availability of a mortgage, how mortgage lenders see this market. And again, particularly after the tragedy of Grenfell, for certain types of buildings with cladding on them or ones that have been built in the last 20 or so years, there's been a bigger focus around building safety. That's another factor, not just the service charge and the ground rents and who owns the property and what are the costs of running it. It's these other factors as well. So I think all of this has taken its toll on flat values, where the gap between a flat and a house is the widest for 30 years.

7:56And, you know, but I'm not sure that flat values can go much lower than they are. But it's, you know, the challenge here is finding enough buyers to when you want to move on. But you've got some really astonishing numbers, don't you, when it comes to the average price of a house in the UK compared to what that's done over the last 10 years compared to the average price of a flat? Yeah, look, the average price of a house has gone up 43 % in the last 10 years. But flats have gone up by just 10 % over the same period. And that really reflects this change in demand. And again, for that person we heard earlier, Hayley, I think it was.

8:28I mean, you do hear tales of people who might have bought a property sort of 10 years or so ago. And people are struggling to sell them for the same price they bought them. But that's really a sort of change in the wider economics and higher mortgage rates. If you look at the official data, the average home was 220 ,000 at the end of 2016. It's 270 ,000 now. So overall, it's up about 23%. But that, of course, is across flats and houses together. I suppose there are no guarantees that house prices will always rise or should always rise. But it is an issue, isn't it, when flats aren't keeping up with houses?

9:01Could one of the issues be that we've built a lot more flats than we have kind of traditional houses? No, there's around about one in 10 owned homes are flats. And we have built a lot of flats in our urban centres, particularly in the last decade or so. But that's largely to do with land availability and the kind of economics of development. I mean, typically, most new homes that are built today are actually houses, but again, built outside those urban centres. So, whilst the stock of flats has gone up, I think it's really the big impact here has been on the demand and changes in attitudes and, you know, more first-time buyers where financially possible, you know, prioritizing a house over a flat.

9:43But even where they have to buy a flat, there's, you know, people are cautious about the price of what they're prepared to pay and, you know, the uncertainty around things like service charges and ground rents and what the government reforms really mean for kind of the future costs of owning a property. We will talk about those reforms in just a moment. We've had an email from Nick in Scotland where he says the vast majority of flats are freehold, not leasehold, and demand for accommodation is very high. He says, just to be clear, when you buy a leasehold, you own a property for a fixed period of time.

10:13It can be hundreds of years. But with a flat, the freeholder owns the land and also the fabric of the building. Doesn't happen in Scotland. But he says it took his nephew just a week to sell an Edinburgh flat and that he sold his own investment property quickly too. He's 67 and says he lives happily now in a small flat he owns. He's lived in flats all his life. Are you seeing a difference in the value of flats and sales across the nations? Is it different in Scotland? It is very different. And I think the Scottish system of owning flats, effectively it's a share of freehold or equivalent to a freehold where you're in much more control over how to spend the money, what's prioritised, etc.

10:52It's different to the English system. And so the relationship between flat and house values has been far more consistent over the last 30 years. So, you know, houses tend to cost a bit more than a flat, but there hasn't been that sort of divergence and that huge preference for houses over flats in Scotland. So, you know, with some of the reforms that are coming up from the government, hopefully we can make the English system get closer to the Scottish system and get more confidence around buying flats and supporting the market and the number of people who can then sell and move on to the next property.

11:23The reforms coming up for the England and Welsh systems, which we will talk about in a moment. But Richard, we're going to let you go. Thank you so much for joining us. That is Richard Donnell, Executive Director of Research at Zoopla. Thank you. Listening to that, joining me for the rest of the programme are today's other experts. I'm joined by Liam Spander, a trustee at the Leasehold Knowledge Partnership, which offers advice and advocacy to leaseholders. And Polly Gilbert, who's Director at the Digital Mortgage Brokers Tembo. Really good to have you both with us. Hello. Hello. Hello. Polly, Amy and Hayley there, they're both from London, but these are issues happening across the UK, aren't they?

11:59Absolutely. I think one question, the question for us and for most of the first-time buyers in particular that we speak to is not so much should I buy a flat or a house though, it's just how can I buy? I mean, we still have people are so keen to become a homeowner. They're so desperate to stop renting that for many people, it's just about doing what is affordable and what's possible. However, we do see flats in particular, leasehold flats, most common in London and in other city centres where it's just out of reach to think that you could buy a terraced house in London for most people. It's a really important point, isn't it?

12:37Rahaya has emailed actually to say something very similar. They're thinking of using their life savings to help their son buy closer to work. But Rahar says, I've never been in favour of the flat option to buy for the reason of unreasonable service charges. But could a young first time buyer afford a house in London? What options have we got? Spending two thirds of his income on rent or risking an expensive ownership of a flat? So a good point there, Polly. Thank you. Liam, let's talk about some of those reforms then. There is a bill going through designed to fix some of these issues. It's the common hold and leasehold reform bill.

13:09As I've said, it only relates to England and Wales. But just explain it to us. What's in that bill? That's right. The aim is to improve the position of people who live in flats in England and Wales. And the way it does that is by abolishing the creation of new leasehold flats. It will require all flats to be common hold, which is closer to the system in Scotland and the rest of the world, where the people who live in the building own all of the building. They own a share in all of the building and they make all of the decisions about service charges. And there's also, it dovetails with the 2024 Leasehold and Freehold Reform Act, which contains measures to make it easier and cheaper to extend a lease, buy a freehold, and get information and challenge unreasonable service charges.

13:57And it also is going to cap ground rents on existing properties at£250. £250. Is that going to get rid of some of this anxiety around flats? Well, ground rents aren't necessarily the problem. I mean, it's a welcome reform, but it's more to do with the level of service charges. They're the issues that tend to concern buyers and mortgage lenders. So we need the reforms in the 2024 Act to come in as well as the cap on ground rents. Well, the government told us too many leaseholders are being ripped off on their service charges and that it will stop that by capping ground rents at 2.50, banning new leasehold flats and making service charges more transparent and says there's further to go with the new bill.

14:38But the Residential Freehold Association told us the proposed ground rent cap will provide very little benefit to the majority of leaseholders, but they believe it will put critical building safety work at risk. It will hamper the residential leasehold market and won't fix the gap between flat and house values. Liam, in terms of where that builds up to, though, there have been delays, haven't there? When can we expect it to go through? So the plan before the change in personnel in Downing Street was that the bill would come forward before the summer recess. And then it would become law later this year or early next year.

15:14Don't know if that is still the plan. But unfortunately, the issue with leaseholders promises are made and then they take far too long to implement. That's been the pattern. So the government does need to get a move on and make these changes. Polly, what do you think? Will this bill fix some of the issues and perhaps put some of your clients' minds a bit more at rest? I mean, it could, but not soon enough. I mean, we're seeing at the moment leasehold purchases that we're trying to get through are falling out at the final hour. We're having a lot of issues with service charges in particular. We had a client recently looking to buy a property in Croydon for£130 ,000, a two-bed flat, which sounds like an absolute bargain.

15:56But it came with a£4 ,500 service charge. And we tried it with four or five different lenders in the end. The buyer had to walk away. So there are people right now every day who are being impacted by this. And 2028 sounds a very, very long time away. We'll talk about service charges in just a moment. But on the other hand, I suppose, to some of this information that we've been looking at, does it mean there are some quite affordable flats out there, Polly, that it's a bit of a buyer's market? Yes, to an extent. I think buyers are in a really good position at the moment. There are a lot of flats that are waiting to be sold.

16:30I mean, as we heard earlier, I think they said six other properties in their building alone. So especially first-time buyers with no chain, they really have an opportunity to try and drive a hard bargain.

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17:51We've had a message from Vivian who says, My husband and I downsized from a house in a village to a flat in the city. It really helps to have all the services nearby. It might not be a good financial decision. Our neighbours have trouble selling their flats. But for older people with one disabled, it's ideal as a home, if not an investment. Vivian, thank you for that. OK, let's talk service charges then, which Polly has mentioned. These are the monthly payments normally charged for things like maintenance on gardens, lifts, other shared areas. they have been in the spotlight as well. Now the average charge is now more than£2 ,400 a year.

18:26That's according to the estate agent Hamptons. That is up 4.5 % annually and more than 30 % in five years. We have had emails about this. I think we're getting emails as we speak about this, including from Manchester, Milton Keynes, Southampton. So across the UK, one person has emailed in the spring to say, my service charge increased from approximately£460 a month to£586 a month in 2025. Now it's set to rise to£683 a month. Liam, this is also something the Commonwealth and Leasehold Reform Bill is going to address. Yes, the 2024 Leasehold and Freehold Reform Act were waiting for those changes to be implemented hopefully this year.

19:10I mean, all buildings have upkeep. That's what service charges pay for. But very often the issue is the lack of transparency and lack of control and the tendency for landlords and managing agents to include hidden fees for themselves and things like insurance. That's a common example. And Polly, buildings do have costs, don't they? As Liam says, the flip side, I suppose, of this is that people in flats don't have to worry about additional maintenance costs. If the lift breaks down, it's not on them to fix it. Of course. And some of these might come with amazing amenities. It might have swimming pools and gyms and all of this.

19:50The property that I mentioned before didn't have any of that. It just had a very high service charge. So I think for buyers who are going to look at properties, it's almost now as important to look at the surrounding area aside from just the flat. Kind of look at the communal areas, look at the amenities. Is the service charge justified? Can you justify it? Can you ask for three years history of the service charge to see how it's changed over time? The thing that we are really seeing is first time buyers, because there is very highly publicised now that there have been these issues with cladding, with high service charges.

20:23A great change is that we're seeing first time buyers really come to us with their eyes wide open. They're looking for these things. They're kind of investigating it to work out if it would be a good purchase. So we really encourage people to do that. I wonder how much investigation you need to do and how much is provided, because we've had this question from a flat owner in Birmingham, and it's being spoken by one of our team. What information and how much detail do prospective purchasers, and of course their solicitors, expect to receive relating to service charges? Current service charge budgets, budget projections, sinking funds, anything else?

20:59As a leaseholder, I am powerless to do anything about service charges, but I know these details will affect how easy it is to sell my flat. So Polly, what kind of information has to be shared at a sale? I think I probably should defer to Liam on that as the legal expert here. Liam, come in on this. So typically the buyer solicitor will want the seller solicitor to fill in forms LPE1 and FME1. They're standard sets. Across the nation, people scribbling down LPE1. And normally you'd ask for three years service charge accounts plus the budget for the current year. And you'd ask questions if there's any major expenditure planned, sometimes called Section 20 major works.

21:46Is the roof about to be repaired or is the lift in need of repair? Are there major external redecorations going on? And increasingly, people are interested in building safety, particularly in buildings where they're more than 18 metres tall. So there can be a whole host of requests for landlord certificates, tenant certificates, building safety cases, things like that. But you have to make sure your solicitor is asking those questions. That information is being gathered. Absolutely. And it can cost you dear if you don't have the right solicitor working for you. So it's important to get that choice right at the start.

22:25Good to know. Good to know. One potential issue with leasehold flats is that the freeholder, as I've said, owns the fabric of the building. That can have some really unexpected results, can't it, for households? So in recent years, for example, I've heard from a lot of people who've been surprised when their freeholder built a whole new floor on top of their building, a practice known as airspace development. And I want us to hear now from a Moneybox listener who's been in touch with a quite alarming story from the other end of the building, where the new tenant in the downstairs of a block knocked out a number of walls.

22:56My name is Andrew. This concerns a property in Dorset. The property comprises seven flats with a commercial below. I used to own some flats there, which I then sold off to other leaseholders, all very great people. And I sort of still run the residential part of the building in terms of the maintenance, etc. etc the downstairs used to be a bank the main fields then rented it to a coffee chain who took out some walls and things to make it more suitable for their coffee shop however the floors above dropped this has resulted in major cracking diagonal cracking you can actually put your fingers through in the cracks but obviously with structural cracks trying to sell a flat or even one other leaseholder was trying to refinance at the time.

23:42And the valuers who came around to do the mortgage valuers indicated that the value of those flats was nil. And we've been waiting, we're trying to push for two and a half years now for the national coffee chain to put their works right. And I don't know whether the new legislation is going to help with that, apart from taking on some very expensive and risky legal costs, which no one really wants to do, and they don't see why they should. How do we force that change? How do we force that coffee chain to make good? Liam, it sounds really, really difficult, doesn't it? This is a flat specific problem, isn't it?

24:16A freeholder allowing the fabric of the building to be tinkered with. Are we seeing more issues like that? Or have leaseholders kind of always been a bit stuck when it comes to developments in their buildings? I mean, it's always been a case there's been a lack of control over what goes on in the building. that's inherent in the freehold leasehold divide. And in 2020, the permitted development rights, which was rushed in through COVID, terribly badly thought through legislation allowing freeholders to build more flats without going through the proper planning process and without giving the people in the building the right to object to it.

24:54That has caused all sorts of problems, not at all uncommon to have people in difficulty. I suppose the government at the time would say that it was trying to make more properties available. It was permitted development because it was trying to create more homes. But bring us up to date. Would the new plans to give leaseholders the power to band together and run the common hold of a building make a difference for issues like that? I think it should stop them from developing in the first place because you're living in a building in which everybody will have to take responsibility and everyone will have a say.

25:27so they shouldn't be developing the building in a way that causes issues for anybody living in it and they can come to a consensus on it. That's the real benefits of Commonwealth. In the meantime though, what can Andrew's leaseholders do? I mean, I think if they've not got anywhere without taking legal action, the time is probably upon them. It sounds to me like what would be called a breach of covenant. The shop below will owe an obligation not to damage the structure to provide support to the flats above. And it sounds to me that that covenant's been breached and there should be various ways of enforcing it, either by claiming damages for doing the costs of the remedial works, possibly even an injunction and a mandatory order from a court forcing the landlord to put the floors right.

26:20But that's something they'd need their own advice on. But I think there are remedies under the current legal system They shouldn't need to wait for any of these reforms. Sounds complex, though. Polly, do you think that as we look ahead, as the reforms are coming in, as we're seeing these issues under the spotlight, will we see flat values catch up again with the rest of the property market? Because we're getting so many emails in from people who love living in their flats. It's just issues like this. I mean, I'd love to have a crystal ball. I agree with what Richard said earlier, that I think they probably can't drop much lower.

26:52I would expect to see a recovery in flat prices. And I certainly think we'll still see demand there. I think for people who are considering it, really, the first and most important thing is to really understand your affordability, what is possible in your area. And there are many ways that people can boost their affordability now using lots of different mortgage schemes. I mean, whether that's new build incentives, whether that's joint borrower sole proprietor mortgages where a loved one joins the mortgage with you. There are many ways to boost your borrowing. So you can actually see, is it possible to buy something that isn't a flat?

27:27And if it isn't, then just going into it with really eyes wide open, understanding all these issues, asking for the right documentation up front. OK, well, that's a good point, isn't it? Because we've been outlining the negatives. Plenty of people, as I say, who love their flats have been in touch. So, Polly, if you're buying a flat because it is the right decision, what process should you go through? What do you really need to kind of tick off that you've thought about? I think, as we said earlier, it's not just looking at the flat itself. So not becoming completely infatuated with the kitchen and not looking at the rest of the building.

28:00I mean, we even... It's an emotional thing. It's hard not to do that. It is. It is an emotional thing. but you also want to know that your bins are going to be cleared away and there aren't cars left in the abandoned cars left in the parking lot which are some of the horror stories that we've heard. So making sure that the building is going to be well cared for even going and knocking on doors. I mean this happened to a friend of mine when she owned a flat and they were going through cladding issues. Somebody knocked on her door bright eyed bushy tailed and said I'm thinking about putting an offer in this building.

28:28What do you think? And she said no. So people will give you their candid information at that stage. So really do your research at that point. Go and understand your affordability so you know what is possible. And then gather all of the documentation that Liam stated earlier that I won't repeat now. OK. Well, David's emailed very positive takes as he moved from a four bedroom bungalow to a three bedroom flat. Such a good move. He says he has mobility problems. Now he has communal gardens looked after by a gardener and he is very happy, which is really good to hear, David. Thank you for that. Well, that's all we've got time for in today's podcast.

29:00Huge thanks to everybody who took part. And thank you, of course, to today's experts, Liam Spender from the Leasehold Knowledge Partnership and Polly Gilbert from the Mortgage Brokers Tembo. If you're currently saving for a house or a flat, don't miss Moneybox with Paul Lewis at midday on Saturday. He's going to look at proposals for a new first-time buyer, ISA. And if there is a story you'd like to share with us, get in touch. You can email moneybox at bbc.co.uk or you can send a voice note or comment on WhatsApp. The number is 033 06783 183. We really do read and listen to every message. In this podcast, the producer was Craig Henderson, the studio manager, Craig Boardman, the production coordinator, Catherine Lund.

29:42Our editor is Jess Quayle. I'm Felicity Hanna. And this was a BBC News Money and Work production for BBC Sounds. So, Alice Loxton, I'm here for the history. Well, Ben Henderson, I like the formality. And that's perfect because we have a lot of history to share. Why did tea become such a British obsession? How did English turn into the language we speak today? And yes, why do women's clothes still not have pockets? Well, in our new podcast, Here for the History, we're investigating how stories from the past shape everyday life today. Basically, the things we've all noticed but never stopped to question.

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