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Developers buying and flipping homes for a quick profit have had their businesses hammered by falling property prices, soaring interest rates and the rising cost of building materials.
Flipping homes was popularised by BBC TV’s programme Homes Under The Hammer, where developers buy ‘doer-upper’ properties at auction, renovate them quickly and then sell them, often at a profit of several thousand pounds for a few months of work.
New data from estate agents Hamptons shows the business model has collapsed.
Flipping peaked in 2007 when 52,950 properties - 3.7 per cent of the market - were bought, refurbished and quickly sold.
Since 2009, the number of homes flipped has averaged around 2 per cent of the market each year (Roughly 26,000 homes).
In 2022, 2.3 per cent of homes purchased (26,340) were flipped within 12 months, but in 2023, this dropped to 9,770 homes (1.7 per cent of the market) by September. Hamptons estimates the total number of homes flipped in 2023 will be at most 16,600 - the lowest number for a decade.
Alison Blease, head of research at Hamptons, said: “Much like in previous market downturns, profit margins were squeezed for anyone flipping a property last year – falling prices meant the average flipper sold their home for only 15 per cent more than they initially paid for it in the 12 months prior. This is the lowest gross return on investment since 2008 (when it was 14 per cent) and almost half of 2022’s average return of 27 per cent.
“Levels of flipping have declined in every region of England and Wales, although the strong North/South divide has persisted, with some southern regions seeing proportionately half as many flips as those further north.”
She explained flipping may make a comeback when property prices start to rise and falling inflation and interest rates make loans and building materials more affordable.
Data from Hamptons also revealed that anyone who bought a property since 2003 and sold in 2023 banked a 48 per cent profit averaging £102,650.
Meanwhile, in separate official data from the Office for National Statistics (ONS), the average house price dropped by £6,000 in the 12 months until the end of November, when the average home was priced at £285,000.
Overall, house prices were down 2.1 per cent in the year to the end of October - flagged as the most significant annual house price drop since 2011.
House prices dropped in every region. The largest fall was 6 per cent in London, while the smallest decline was 0.4 per cent in the North-East.
However, average house prices of £505,000 in the capital remain the highest in the country, and although values were down the most, in real terms, they fell 2.6 per cent from a starting point of -3.4 per cent to -6 per cent in the year.
The lowest average house price of £160,000 was posted in the North-East.
The Halifax published data showing house prices dropped 1.7 per cent in 2023, down 1.1 per cent from November and leaving the average home worth £287,105.
Building society the Nationwide released data showing house prices were down 1.8 per cent in 2023, with the average home priced at £257,443.