Why 2026’s most hated property is really the most underrated

0:02Flats vs houses. It's an age-old debate. A debate where people get very, very passionate. And they insist that you must only buy houses or you must only buy flats. You know what? You can see why people do get so passionate and fixated. Because if you get it wrong, then yes, you will be punished and yes, it can become very expensive. So this week we're going to get into the detail to help you make the best investments possible. And most importantly, avoid the pitfalls.

0:39Welcome to the Property Podcast. Thank you for joining us. In case you don't know, we run a business that puts together more than£100 million worth of property deals every single year. You can find out about that at propertyhub.net slash invest. Some of those deals we put together are houses, and some of those deals we put together are flats. And from doing a lot of these deals, from talking to the biggest developers, from talking to the biggest funds we've had a front row seat to everything that's happened over the last five ten years that has completely changed how people think about these two types of investment so in this episode we'll take you through everything that has changed what a lot of people are getting wrong about it and the opportunity it might be creating right it's time for our new story of the week and this week's news story picked up from city am but it's the chancellor really that's created the headlines but the headline of this particular news story is chaos now downing street rules out rent freeze after backlash over reckless rumors and this story comes courtesy as i've said from the chancellor rachel reeves who fueled rumors that she was considering rent caps and rent freezes in england after she refused to distance herself from the policy while speaking in a house of comments where she was asked would she impose a rent freeze and to quote Rachel Reeves said I will do everything in my power and use every lever we have to bear down the cost of living including for people in the private rented sector.

2:09Now after multiple stocks got hit off the pack of that comment on the FTSE including buy to let mortgage lenders, Damning Street was quick to release a statement to say that they have no plans to implement this. So there was a few hours of chaos where people started to wonder what Rachel Reeves had in store but luckily this has been stamped down really really quickly and I think we should take encouragement at how quick they were to stamp the rumours out on this potentially happening because it would be reckless. In fact the head of the center for policy studies think tank said this would be mind-boggling scale of intervention in the private market i don't think they're a fan and i don't think we'd be a fan either truth be told to state the obvious but because the government was so quick to quash these rumors i don't think it's one that needs addressing again maybe a labor government of decades ago may have considered this whereas they're pretty central now and almost the same as conservatives or conservatives are almost the same as Labour and that is a very centre party.

3:18I don't think we have too much to worry. So a scary headline but luckily in this case a happy ending. The common wisdom you hear today is don't buy a flat. Everyone is saying it. People have turned against flats in a big way but how valid are the arguments? Because sometimes when everyone's saying something then it's obviously true but sometimes when everyone's saying something but it's built on shaky foundations, then there's an opportunity to go against the crowd. So in this episode, Rob, we're going to look at where this belief has come from and what the data is actually telling us. And to do that, I think we have to differentiate between the factors that have always been true about flats and the ones that people have started to get worried about more recently.

3:59One of the things long-time listeners of the podcast will know is that we love to spot value or opportunity. And when there's negative sentiment in a sector, like there is, with flats then again that can create opportunity but I think it's fair to say that within that opinion there is some truth because there's always been trade-offs when you go down a certain path with property it's the same with houses there are trade-offs there as well which we will talk about but it's important to understand that flats versus houses have always come with a different risk reward profile. That's always been the case and it will always continue to be the case, but it's a trade-off.

4:42There are upsides and there are downsides and people don't really consider the bigger picture when building out their strategy. I think it's also really important to say very early on, Rob, is that we invest in both. We don't have a preference. We invest in what's best. And I think that alone should intrigue you. If you've got a mindset that's quite fixed at the moment that you'll only go down one way, whether it's only flats or only houses. I think you should be a bit more open-minded and we're going to get into that and we're going to help you understand why you should be very much open to both.

5:16But Rob, let's get into the drawbacks because there are certain drawbacks about investing in both, as we said. Let's start with flats, apartments. What are the drawbacks? What are the downsides or the potential downsides? Well, like you said, we own both. The people who don't like flats and there are people who just go, I'll never own a flat, they make the argument that, well, there are service charges. You have to pay. Even if nothing goes wrong, you still end up paying a service charge. It's leasehold. There's a clock that's ticking down. And at some point, you're going to have to extend that lease, and that's going to cost you money.

5:43And if it gets really short, then you're going to have problems getting a mortgage. And you don't have control. If you think the outside of the building needs painting, but no one else agrees, or the other way around, then there's nothing you can do about it. You are not in full control of your investment. And for some people, that is a deal breaker. They're putting a load of money into something. They want to have control. And I completely understand that way of looking at things. But like you say, people look at these very visible drawbacks and often come to a conclusion. But you've got to remember there are advantages as well.

6:09Yes, there are. Otherwise, we wouldn't invest in them. And there are clear advantages. The big one, we love this, is no maintenance to manage yourself. So the big stuff like the roof, the lifts, the exterior, that's all handled by the service charge. You don't need to sort anything out. It's all done for you. So if you have a leaky roof in a house, that's for you to sort. If you have a leaky roof in an apartment block, that's for the management company to sort. It's not something that you have to sort out. Yes, if your washing machine breaks or anything like that, of course you need to fix it and that is your problem, but you're talking about minor stuff.

6:45It's more predictable as well because you don't get ambushed with those big costs. Again, to use the roof example, you haven't got suddenly an£8 ,000 bill that you didn't expect. It's within those service charges and there's often a sinking pool within the service charges to cover those larger maintenance projects And if there isn't, then it's then dished out between everybody. So it's not just your bill, it's everyone's bill. And Rob, they're really important. But for me, this has always been the big one for me. It gives you access to prime city centre locations. You can't really buy a house in central Manchester.

7:19It just can't be done. Same with Birmingham and every other big city you can think of. So if you want exposure to those cities that are going from strength to strength, you have to be open-minded. It's the norm there. that's how people are living in the city centre yes of course if you go further out it changes but if you want prime city centre you just have to be open to apartments and they're much easier to rent to professional tenants as well because it's just easier for them to manage and maintain they don't want to be mowing the lawn they want amenities they want the lifestyle that these apartments can give them and for certain tenant profiles house just won't be appealing Of course, the reverse is true as well, but you have to understand that people want them.

8:03That's why so many are let out, because there is a demand for them. And this is something that's often missed as well. When people talk about service charges, they do exist. But what you'll find with apartments is you get a higher yield than houses. Obviously, there are exceptions to the rule, but generally that is the case. If you look up and down the country, yields on apartments are higher. so that covers that service charge it's already in there people get obsessed with the number at the top and go i've got to pay a service charge but what you should be more interested is is the number at the bottom of the spreadsheet how much return are you getting and because you get a better return your gross yield higher then it balances itself out with those service charges because it's covered by that extra rent that you're getting that is often missed by the majority of people, I might add.

8:54So if it's something that you've not considered before, don't worry. Most people don't realise. I suppose people aren't looking at the data as closely as we do. But when you compare them, it's just really, really interesting. Well, that's it. I think it's easy to see a predictable bill against no bill and think, well, that costs more. But if you work out the rental differential and you also work out, well, what are the costs of boiler replacements, roof replacements, all these things that happen every so often and annualise them, how much would that be against a service charge? I'm not saying it's the same but it narrows the gap the other big one that you mentioned rob is the fact that by not considering flats you are wiping out a big part of the market so across the uk apparently 21 to 22 percent of uk homes are flats so by not considering them you're wiping out a fifth of the market but in london it's more than 50 and in greater manchester is 28 and obviously if you go city center london or manchester then it's going to be a lot higher so it does wipe out large categories of investing.

9:45But nevertheless, none of this is new news. People have always had these views. There's always been a debate about houses and flats. We've been doing this for 13 years. Since the very beginning, we've had people asking, oh, should I invest in houses or flats? And up until about five years ago, people made their choice. Maybe we didn't always agree with their choices, but they made them and everyone got on with life. But over the last five, maybe 10 years, things have changed. Views about flats have become more entrenched. And that's where i believe things have crossed over from a group of people having a personal preference to received wisdom conventional wisdom being you'd be mad to buy a flat why would you do that it's a terrible investment that has changed over recent years rob and there's a few reasons for that there are of course first of all there was the grenfell tragedy and that was in 2017 and off the back of that in industry there was the cladding crisis which meant that lots of high-rise buildings were deemed to be not up to standard for fire protection so there had to be a lot of work that was needed on those buildings and during that time it made them unmortgageable it made them hard to sell and understandably off the back of that there was lots of people complaining and making a lot of noise about those apartments I went through it myself apartments I owned went through that very process I'm pleased to say it's come out the other side now but it did take years to work through it wasn't months it took years to work through of course we had another major event in covid which led to what felt like an exodus to the suburbs people craving outdoor space and people said that's it it's the death of city centre flats no one's going to live in cities anymore everyone's going to go and live in cornwall and other places like that and then there's the fear of service charges and going up and the inflation of service charges.

11:31And there is something in this because the average service charge in England and Wales rose 11 % in 2024 alone to£200 per month. 11%, that is way above inflation. And that's been driven by higher energy prices, but also insurance as well, because of some of the issues that we've just laid out. So it meant that over the last few years, This wasn't just 2024, but 2024 was a bit of a spiky year. It has risen well ahead of general inflation. And all these things combined meant that flats decoupled from houses in terms of pricing. For years, they tracked each other for growth rates. In fact, there's been periods of times where flats have outperformed houses in terms of growth.

12:15But from 2022, houses have outperformed flats. And when you go through that list, you can kind of understand why. Totally. It was a perfect storm in many ways. You had three largely unrelated events, all of which hammered flats from different angles. And this is where it's a real shame this is an audio show, because I'd love to throw up the chart from the land registry. When you go and look at the chart, it's amazing how flats and houses just move together, move together for decades and decades, and then suddenly, boom, flats basically stay where they are while houses kick on. So you can see why this wider belief has taken root.

12:47flats are a terrible investment. They're a terrible investment because over the last five years, they haven't grown in value as much and all these terrible things have happened to them. And that is all completely true. And if all of those factors were permanent, you wouldn't touch flats because all of those things were holding prices back. And therefore, if they continued to hold prices back, then houses would continue to be better. You would be mad to invest in a flat. But actually, Rob, that's not the case because when you go through all of those factors that you mentioned a minute ago, and you look at what the government's been doing around flats, we have been looking at a set of temporary factors that's been holding them back and that's what i think a lot of people are missing so the bits we've just gone through are well documented and talked about a lot but what we're about to go through really isn't and that's that things have changed but nobody seems to have noticed because let's start with ground rent we didn't list it really there but ground rent is something that people take issue with that the fact that you just pay a rent for nothing it's like you don't really get anything for it service charges there's a trade-off.

13:44You pay your service charge, but they look after the block for you, provide amenities sometimes, and the services that go with it. That's great, but ground rent just felt like dead money. You were just paying something for nothing, just for the privilege of owning the property. Well, in 2022, things changed. All flats, apartments after that are now peppercorn rent, which is effectively zero. There is no ground rent. So that's great news. That's something that many people had issue with and that's gone away and there's work on the way to address leases before 2022 as well so if you already own an apartment or you're looking to find an apartment that's older they're working to cap that to 250 pounds a year that's not in place yet but it is in progress also because the ground rents aren't really worth anything anymore because of this zero charge every year the lease lengths become irrelevant to those who own them so now you see on the majority of apartments, flats that are released to the market since 2022, they have 900 plus year leases, which makes them virtual freehold.

14:49You don't have to worry about re-ewing a lease on those properties. They're practically freeholds. There aren't going to be many properties around in 900 years that are here today. They'll certainly be listed, but you know what? That won't be your problem. The cladding issues on older stock is pretty much sorted. On newer properties now they're built in a way that is compliant they can't get built if they're not so there's none of those issues there as well and something we've documented on this podcast time and time again is that the covid effect is reversing hybrid working seems to have settled people are moving back into cities that's that's you know not opinion that's facts it's data and demand for well-located flats in these cities is picking up at an incredible pace you know in places like Manchester there isn't enough apartments still for the amount of demand of people who want to live there there is a supply issue which would surprise many people but it is the case it is true the the major cities the ones that go from strength to strength lots of people want to live there and we love to be of a contrarian on this podcast Rob but this is where the opportunity lies if you are contrarian because there are lots of opinions in the market those opinions are driving sentiment But actually, they're not fully formed opinions.

16:02They don't have all the information or they choose not to go and find all the information. And that then creates opportunity. And we love it when that happens. And service charges as well. Service charges are one where it's less obvious that that was a product of its time. I think people have been left with the impression that service charges just go up by ridiculous amounts all the time because they can. But management companies haven't become more greedy or more badly run over the last five years. As we said, there are factors behind those service charge increases. So segments of service charges that always take up a large proportion of it, like energy and insurance, outpace general inflation.

16:36And you've got to remember as well, general inflation was nuts for a few years. So you're seeing big bills come through, but that was your bill for everything for a few years. So all of these factors that we just described are temporary. That's what potentially creates the opportunity because this view has settled in now. People are convinced that flats are just structurally a terrible investment. And that's just not true. There are trade-offs, which we talked about right back at the start. And those trade-offs have always been true will always been true. The part about lease length and ground rent though that people didn't like that we talked about earlier, that's recently got better.

17:05If you strip out all of these events that have been going on for the last 5-10 years, then flats are a better investment than they were before. So at some point the market will pick this up. It won't happen immediately because perceptions take time to turn around. But pretty soon at least the growth rate for both will go back to tracking each other like they always have done before. Because they decoupled, because of all of these factors, they hit one part of the market harder than the other, but then those factors have gone away you'd expect the same thing to happen as before they go back to each other but actually what i would expect to happen is that gap to be eroded because a value gap has opened up flats are now historically cheaper relative to houses than they were before they've always been cheaper but the relative difference is what i'm talking about so what happens in markets is when a gap opens up when something has become mispriced by certain factors people in that market notice and the gap goes away so again property is far from an efficient market this isn't going to be a sudden snapback.

17:58It might take a while for this to fully happen. But when you've got this popular belief that has set in and people are just down on this entire giant sector of the market, then it means that if you buy the right assets within that market, there are opportunities there. So for me, Rob, the question is not, should I avoid flats? Because as we've said, we were buying both houses and flats before, we're buying both houses and flats now. But the question is, given everything that's changed, which types of flats should you be buying and what should you be looking for? Great question and this is really important because flats are an opportunity, it's not the same as any flat will do.

18:32So there are four things that anyone must check before they buy. They're non-negotiables, get this right and then you'll be in good shape but if you get it wrong it can be a very expensive mistake. So first of all check the lease length. Now, modern day leases, so properties that are new, you're going to find that the leases are 999 years or 900 years. So that's not an issue. But for older properties, you need to check the lease length. And you want to be looking for ideally a minimum of 125 years. And the reason I picked that is because your mortgage length will be for around that 25-year period.

19:10And if you own it for the entire period of that 25 years, you'll still have 100 years left, which is absolutely fine. Properties used to be sold with 100-year leases. So I think 125 is a nice number to look for. You can go for 100 and that's okay too, but what you want to be careful of is when you get below 80 years or approaching that number because the lender pool starts to shrink and eventually when it drops far enough, you can't get lending whatsoever. So then you're forced into a situation where you need to get an extension. Now, some people target properties like this, and it's a very niche strategy where people go for properties with really short leases because they can get a great deal and then extend that period of time, that lease, which you can do.

19:58You have every right to get an extension. You pay for it, so you need to get a quote before you go ahead to understand how much it would cost you to get an extension. So if you want to keep it easy, stick to 125 years or more or go for a new property because it'll have a really, really long lease. But if you do find a property that you really like that has a length of under 100 years, under 80 years, then you want to start looking at the cost of an extension. The second thing you need to be checking is ground rent and particularly on any properties that were pre-2022. because since 2022 you've effectively got peppercorn or zero gram rent.

20:40Peppercorn is just a minor amount so it's not an issue for any leaseholds that were built after 2022 but before that you just need to be careful. There were some leases out there that doubled every 10 or 25 years and that sounds like it'd be fine you know if it starts for a low number but actually when you start to do the math it does become quite a big number in time and lenders for that reason are very very wary of those type of leases and in fact some lenders will not lend at all so if you're looking at a second-hand apartment pre-2022 then do check how the ground rent is set up what the costs are and how often it's adjusted because that could hurt you as well.

21:24Third is block management so if it's a new build who's going to be the block manager, what's their credibility like, how are they looking after properties already and basically what you're looking for is a good understanding of how they run their business and how well they run the properties that they look after. Now if it's not a new build and there's already a block management company in place well then ask for the service charge accounts before you commit. You can then see what the numbers are, how the money's been managed and also it's not just the cost. A lot of people just focus on the cost but remember block management when well run is an asset so when you go to view the property look at the condition of the communal areas.

22:07That is a perfect indicator of how well the overall block is being looked after. If you don't get that part right then you might want to be cautious. And the fourth and final check you need to be making and again non-negotiable is building safety. So get written communication on cladding and fire safety before committing to a property. You'll be looking for something called an EWS1 form or equivalent. Again, this doesn't apply to properties that are built new today. All these things will be in place. They have to be to meet the regulations. But on older properties, you will need to be checking this.

22:46If you cannot get confirmation of this and proof that it's all been rectified, then walk away because those properties can be very very difficult to get mortgages on so make sure you check that out as well if you're looking at an older property now list these things out not for you to be put off but just for checks to be complete as you've heard new properties most of those things don't apply but for older properties you'll need to go through all of them but go into this with your eyes open make those checks make sure you get no nasty surprises and then get yourself a great deal. So as we said earlier, we love to be contrarian on this podcast.

23:22Not contrarian for the sake of it, but when you step back and you look at some of the factors that we have done today, it just becomes obvious. If you don't like flats for intrinsic reasons, if you didn't like them in 2016 and you still don't like them now because you don't like the lack of control, which is probably the big one, then fine, that hasn't changed. None of this affects you. But if you are newer to property and you've been absorbing some of this anti-flats narrative that seems to be everywhere right now, then I think it's worth thinking it through for yourself because you have to look past all these one-off factors that have now resolved and going back to those fundamentals and go well if i look at the enduring pros versus cons how do i feel about that and if you're happy with flats in general blink great news because you've got this contrarian setup in place where at the moment you're getting an unusually good price and at some point when perception catches up with reality you're going to benefit okay before we wrap up this show let's quickly bring you hub extra that part of the show we try to give you a little bit more something that's going to make your life a bit more interesting or useful and today i've got a YouTube channel.

24:18There's of course loads of great stuff on YouTube and I love discovering new channels that I really enjoy and the one I want to talk about is called Speed. It's speed with three e's so I probably should pronounce it speed but that sounds really weird. I won't say too much about what it is because it's really hard to describe but all I say is check out the channel the type of topics they cover are all over the shop so just pick one that you like the sound of give it a watch either like me you'll really enjoy this style and it's hard to articulate why but you just love the way that they do it or you won't and this will be a terrible recommendation by the way you'll find out within five ten minutes so that is today's hab extra speed a youtube channel i've really been enjoying and we'll link to that in the show notes so that's another part for another week thank you so much for joining us we'll be back on tuesday with ask rob and rob before that you'll find us in the sunday times answering your questions there we do love getting your questions whether in print or on Ask Rob and Rob, so do not hesitate to get in touch.

25:13And of course, we'll be back same time, same place next week with another property podcast. So until all those wonderful events occur, take care, have fun. Bye-bye.