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Capital appreciation on 'classic' tiny buy to let flats may be limited

Consumer group Which? says ‘micro-apartments’ - which have proliferated in recent years - may not be good investments. 

The group has focussed on properties smaller than 37 square meters and says almost 8,000 of these were built in 2016.

Which? says micro-apartments of this kind have been built in London, Leicester, Liverpool, Cambridge and Bristol in recent years. 

But it insists that buyers, including buy to let investors, should be aware that micro-homes of this kind don’t necessarily appreciate in value like their larger counterparts, while some mortgage lenders won’t lend on them at all. 

Which? compared the average price of different sized properties sold in 2016 with those sold between 2013 and 2015 to measure the price growth of different-sized homes. 

“Our analysis showed properties with floorspace of between 50 and 120 sqm had the best price growth in the period. However, homes smaller than the national minimum space standards did not perform as well; price growth for properties smaller than 37 sqm  was 6.9 per cent compared with 8.7 per cent for homes larger. This is despite almost two-thirds of these smaller properties being located in London and the South East, which have seen massive rises in house prices in recent years” says Which? 

“That trend continues for even tinier homes: properties smaller than 30 sqm grew just 5.4 per cent in value between 2013-15 and 2016. In London, micro-homes did slightly better: properties smaller than 37 square metres grew 11.8 per cent between 2013-15 and 2016” it says. 

In addition, it is not necessarily easy to secure a mortgage - whether as an owner occupier or a buy to let purchaser - on the smallest units. 

Which? asked six major mortgage providers whether they had special criteria on lending for smaller homes.

“While HSBC didn’t comment, 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. For example, Barclays said it requires flat conversions to have been developed with ‘reasonably sized rooms’, but said that this is ‘down to the valuer’s professional opinion.’ However, Nationwide and RBS wouldn’t lend on properties with floor areas smaller than 30 square metres. RBS added that smaller properties run the risk of ‘restricted demand’ and ‘volatile pricing on resale’.” 

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