The market for London flats is crumbling and its impact is beginning to ripple out across the country.

Almost half of small London flats - those classed as either one-beds or studios - are now selling for less than they were bought for, according to analysis of Land Registry by property data firm Bricks&Logic.

These losses are for flats not just bought in the last five years, but 10, 15 or even more than 20 years ago.

Larger two or three bedroom flat owners in the capital are also likely to be in for a shock when they come to sell. So far this year, more than one third of larger flat owners in London are accepting a lower price than they paid. 

In the last year alone, the average price of an inner London flat has fallen by 6.2 per cent, according to Land Registry data, wiping around £35,000 off the typical selling price.

Hayley Minn, 34, is one such flat owner in the capital facing the prospect of selling her home for less than she bought it for.

Hayley bought a two-bedroom flat in Greenwich with her husband two-and-a-half years ago for £470,000.

They are now trying to sell the flat for £460,000, with it having been on the market for almost a year. 

They are in the process of changing estate agent for the fourth time.

Hayley and her partner dream of buying a house outside of London in St Albans, but with a £380,000 mortgage on their flat, they won't be able to afford it if they slash the price any further.

'We have had loads of viewings,' says Hayley. 'The flat has amazing views over a creek. But nobody seems serious enough to make an offer.'

'I am just so frustrated by it all. We want to start a family and move close to my parents who live in St Albans. We also have lots of friends who live in that area.

'We are now resigned to starting a family here in Greenwich. At the odd moment, I find myself getting quite upset and emotional about it all. We are just stuck.

'From talking to friends, it sounds like there are many people around my age in the same boat as us who also can't move up the property ladder.

'I always assumed that buying a flat would propel us towards our ultimate dream of buying a house. Instead it has done the exact opposite.'

'A few years ago, the idea of owning a flat in Greenwich felt like a dream - but it is a dream we have outgrown very quickly.'

Nicholas Austin, branch manager of estate agents RiverHomes, in Putney, south-west London says many flat owners in his part of the capital are also starting to accept the reality that their flats are worth less than they paid.

'The flat market in London is under real pressure and the data increasingly reflects what many of us working in the market have been seeing for some time,' he says.

'Flats account for around 60 per cent of transactions in London, yet approximately 90 per cent of loss-making resales are flats. 

'That should be setting alarm bells ringing in Government. For years, policy has assumed that flats - particularly smaller flats - are the natural first rung on the housing ladder. But increasingly that model appears to be breaking down.'

The slump in flats is spreading out of London 

The collapse in flat prices in London appears to be spreading out across the country, according to Bricks&Logic's analysis.

It found that one third of one-bed flats are selling for a loss outside the capital, while just over a quarter of two and three-bed flats are being sold at a lower price than they were bought for. 

This is a dramatic shift from what was happening in the summer of 2022 when the Covid induced property boom reached its peak.

Back then, only 16 per cent of one-bed flats and 13 per cent of larger flats outside London were selling for a loss.

In every region of England, flat prices have fallen sharply over the last 12 months.

In the North East, the average flat price has fallen by almost 9 per cent in a year, from £107,715 to £98,104, the data shows. 

In the South East and South West, East Midlands, North West and Yorkshire and Humber, flat prices are down 7 per cent or more year-on-year.

'England has fallen out of love with the flat,' says Ashley Osborne, founder of buy-to-let platform, Lexit. 'The toxic reputation of leasehold, together with spiralling service charge costs, means that the numbers no longer work for landlords. 

'At the same time, owner occupiers are either too scared of rising costs, or the service charges are too high - relative to capital values - to get a mortgage.'

Beware the effect of climbing the property ladder

The collapse in flat prices means many people who bought apartments as a way on to the property ladder now find themselves unable to afford something bigger.

The impact of this is likely to ripple out across the housing market and stretch up the property ladder. 

First-time buyers no longer want flats, those in flats can't afford houses, and those in houses suddenly face a reality in which there just aren't enough buyers to pay the big ticket prices.

And where there would have once been landlords, holiday let investors or even second home buyers to pounce on the opportunity, this is no longer the case. 

Property investors are buying in smaller numbers due to higher taxes, higher mortgage rates and more red tape. Indeed many are now selling.

Owning a second home, once a middle-class dream, has also become a much more expensive pursuit due to the doubling of council tax and a 5 per cent stamp duty surcharge.

The repercussions are already being felt by sellers up and down the country. The average time it takes to sell a property is at its highest since 2011 – at 75 days – figures from estate agent Hamptons show.

As an estate agent, Austin sees how the demise of flats has an impact on house sellers. This is because property transactions are often in a chain and, if one sale collapses or is delayed, all the others are impacted. 

'Today’s house buyer is often yesterday’s flat owner,' says Austin. 'If flat owners cannot move, they cannot buy houses. If fewer people trade up, demand slows higher up the ladder. 

'That reduces transactions, lengthens chains, weakens confidence and eventually affects house price growth too. 

'The danger here is not simply falling flat prices. It is that the bottom of the housing ladder stops functioning. 

'Government should take this seriously. Building more units alone is not enough. If anything, there is an oversupply of flats in London that people can’t afford to own. 

'We need homes that people can afford not only to buy - but also to own, keep and eventually move on from.'

The effect is already starting to show to some extent. Around 7 per cent of houses are now selling for less than they were bought for, up from just 1 per cent in June 2022.

'Many people believe there is a justified premium for freehold properties,' adds Osborne. 'However, a significant increase in landlords listing non-performing flats, is increasing already elevated levels of supply. 

'This together with economic headwinds could negatively impact sentiment in the freehold market, dragging prices down.

'There is currently nothing on the horizon which points to better times ahead, in fact in the short-term market conditions are likely to deteriorate further.'

Running costs now matter as much as asking price 

Austin fears we could see a prolonged decline in flat prices  - particularly for those flats in high-service-charge developments or in buildings with cladding or major works concerns.

'I increasingly think this is not a short-term correction,' says Austin. 'For large parts of the market this may be becoming the new normal. The biggest issue is affordability, but not in the traditional sense. 

'Buyers no longer look only at the purchase price or mortgage payment. They are looking at total monthly ownership cost. Service charges have become extortionate in some developments and continue to rise. 

'Add insurance, reserve funds, compliance costs, fire safety obligations, lifts, concierge services and management charges, and suddenly a flat that looks affordable on paper becomes very expensive to own. 

'That hits first-time buyers hardest because they tend to be the most sensitive to monthly outgoings and have the least financial flexibility. At the same time, the ultra-low interest rate environment that supported flat values for years has disappeared.'

But Austin thinks there will be sections of the flats market that could see prices rise - those that are more 'distinctive' and with 'scarcity value.' 

These include period conversions, lower-service-charge buildings and best-in-class locations where lifestyle still commands a premium.

'I do not think the flat market is permanently broken,' he adds. 'But I do think the days of assuming that because a property is in London it will automatically rise in value are over. 

'The market is becoming more selective and buyers are becoming much more sophisticated. Running costs now matter almost as much as purchase price.'