New-build homeowners face sky-high service charges

9 March 2016

Owners of new-build apartments and houses have to pay, on average, a whopping service charge of £2,777, according to new research.

Direct Line, which provides landlord insurance, has found that service charges for new-builds are 96% higher than older properties and that a third of management firms have upped their service charges within the past two years.

Leaseholders currently pay an average of £1,863 to cover the cost of overall building maintenance, which often includes money towards a sinking fund for future major works.

The way that management firms calculate service fees varies widely, ranging from a flat rate whatever the size of the property to fees that depend on the number of bedrooms or square footage.

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Service charge levels also vary significantly depending on the development. For example, researchers found that one new-build development coming on to the market in Croydon this year will charge leaseholders £1.55 a square foot, while developers of an apartment block in Lambeth, which will be completed in 2017, plan to charge over four times more – at £7 a square foot.

Direct Line points out that these price hikes are partly due to the trend for new-builds to have extra amenities, such as 24-hour concierge services, gyms, cinema rooms, and even libraries, which add value to a property but also lead to higher service charges.

Leaseholders are also faced with a double whammy, as ground rents, which used to be a paltry amount, now average £371 a year for new-builds and £327 for older properties.

Homeowners in private roads also hit by service charges

And it’s not just leaseholders who are paying high service charges: owners of houses in private roads or estates are also being charged significant amounts by developers for maintaining their roads and gardens.

For example, researchers found that owners of every four-bedroom property situated on a development in Guildford are charged £900 a year for the upkeep of the road and communal gardens.

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Nick Breton, head of Direct Line for Business, says: “Service charges are often a hidden cost, which should be factored in when considering the affordability of a property. In some cases, service charges are uncapped and can escalate rapidly.

“Landlords need to take into account all associated costs when purchasing a property, such as service charges, ground rent and taxes that may impact their rental yield.”

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