Consumer group highlights down side of new trend in micro homes

With house prices continuing to rise in the UK, sacrificing space for an affordable space may seem like a good option for first time buyers but a new analysis of so-called micro homes warn of the downside of tiny homes.

More and more smaller apartments are being built, many less than 37 square meters or the size of an London underground tube carriage, according to research from consumer organisation Which? This is the minimum floor area allowed under UK national technical housing standards.

Overall almost 8,000 new micro-homes were built in 2016, the highest number on record, according to the analysis of Land Registry data. But as developers rush to use more flexible planning laws and carve up office blocks into homes, prospective buyers should be cautious, the group warns.

The research suggests micro-homes don’t necessarily grow in value like their larger counterparts, while some mortgage lenders won’t lend on them at all. It also warns that the technical standards aren’t legally binding and where there are housing shortages, developers can apply to local authorities for permission to build smaller homes and councils cannot reject properties on grounds of size alone.

In 2013 the Government introduced so-called Permitted Development Rights (PDR) which allowed builders to convert offices into residential homes without submitting planning applications. Since then developers have been purchasing disused office spaces and splitting them into many small studio and one bedroom flats:

But this trend isn’t confined to London suburbs and the research shows that high numbers of micro-properties are being built in urban areas like Leicester, Liverpool, Cambridge and Bristol.

The term ‘micro-property’ covers a broad spectrum of homes, including poorly thought out flat conversions with toilets in the kitchen or showers in the living room. But many of the new properties produced under Permitted Development Rights use space in an intelligent way, according to developers who spoke to Which?

Gwyn Roberts, of housing charity BRE, explained that size is less important than innovative and practical design. ‘Small homes that are not well located, have poor indoor environment and are generally designed and constructed poorly would not reach our standards,’ he said.

‘But many micro flats are well located, have communal space inside and out and are well designed to have property ventilation, sound insulation and more,’ he added.

Martin Skinner, chief executive of Inspired Homes, suggests younger buyers in particular tend to have lifestyles that suit smaller apartments, citing the growth of the sharing economy and more possessions like music and film collections stored in the Cloud. He pointed out that many of their PDR properties have opted for flexible furniture solutions including desks that transform into dining tables.

Often, micro properties offer a cheaper alternative to regular houses. In 2016, properties in London smaller than 37 square meters cost just £279,000, according to Land Registry data, less than half the average price of a London home sold in the same period at £580,000.

While micro homes are a cheaper way of getting onto the housing ladder, the reprot says that it’s important to consider whether your investment will grow in value over time.

The UK already has some of the smallest homes in Europe, at an average of 76 square meters compared to 137 in Denmark. The research found many newly converted office developments with floor areas of 16 square meters, smaller than the size of a sumo wrestling ring. There was one studio in Brent that was just eight square meters, some 3.5 square meters smaller than the average UK parking space and only 1 square meter larger than a prison cell.

Micro homes are cheaper, usually closer to city centres and often too cramped for families with children. For those reasons, it’s not surprising that they’re mainly bought by first time buyers but they don’t grow in value like regular sized properties.

‘A simple reason might be that many buyers aren’t eager to sacrifice space for convenience. Another reason, however, could be the ability to borrow to buy them. If most buyers cannot easily get a mortgage on the property, this may limit price growth over the long term,’ the Which? Report says.

The organisations asked six major mortgage providers whether they had special criteria on lending for smaller homes. HSBC didn’t comment and Lloyds Bank, Barclays and Santander all said they didn’t have a specific size limit, but that they lend on the basis of a professional valuation. Nationwide and the Royal Bank of Scotland wouldn’t lend on properties with floor areas smaller than 30 square meters.

‘I would suggest anyone thinking about buying a small flat should speak to an independent mortgage adviser to understand their options, but also think about the re-saleability of the property and if demand is likely to remain strong for that type of property in the future,’ said David Blake from Which? Mortgage Advisers.

‘With the average London micro property selling for £279,000, smaller homes can represent a more realistic opportunity for many but can also be harder to mortgage. Smaller properties can put lenders off due to concerns around the future value of the investment. However, there are mortgage lenders who are receptive to properties of this nature, if demand is high enough and sustainable,’ he added.

The report concludes that with modern facilities and intelligent space solutions, the micro-homes of today are a far cry from the inner city studios of old where you could touch the toilet from your bed. Demand for cheap, inner city housing, coupled with rising prices, have driven up the supply of this type of property but it remains to be seen whether they offer viable returns to owners or prove to be homes that people actually aspire to live in.

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