Property service charges escalating to hit owners

Property service charges are increasing rapidly, it is reported this morning.

The average charge is £1,863 but for new-builds it is £2,777.

One third of management companies have increased service charges in the last two years.

The research was carried out for insurer Direct Line, which points out that the average charge of £1,863 represents more than two months of average rental income for landlords.

In addition to service charges, landlords will have other costs including finance costs, agency fees and ground rents – which now average £371 a year for a new-build and £327 for an older property.

Direct Line also says that service charges for new-build properties vary markedly.

One new-build development coming on to the market in Croydon in 2016 will see home owners paying £1.55 per square foot in service charges, while a development in Lambeth coming on to the market in 2017 is charging four and a half times more at £7 per square foot.

Service charges are no longer simply about maintaining common parts in blocks of flats.

There is an increasing trend for new-builds to include amenities such as libraries, 24-hour concierge services, gyms and cinema rooms that are contributing to the increased cost of service charges.

Recent moves by developers have also seen more private housing stock owned by freeholders subject to service charges.

Owners of homes on private roads or private estates are being charged for upkeep of roads and gardens.

In one example, owners of every four-bedroom property on a development in Guildford are charged £900 a year for upkeep of the road and communal gardens.

Nick Breton, head of Direct Line for Business, said: “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.”

He warned that the method for calculating service charges also varies between developments.

In some cases it is a flat rate for all properties, while for others it is determined by the number of bedrooms or the square footage of a property.

2 Comments

  1. Will

    The method of service charges referred to in the last paragraph is usually set out in the lease and would be very difficult to amend once leases are in place.

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  2. Clarkuk

    “There is an increasing trend for new-builds to include amenities such as libraries, 24-hour concierge services, gyms and cinema rooms that are contributing to the increased cost of service charges.”

    Don’t think there’s much demand for a 24hr concierge service in Harrogate (or anywhere up north for that matter) :(

    Is there any way that we could all agree a Estate Agents North/South divide? I’m sick of hearing about all these facts and figures that are skewed with London prices. If they took out London from all these figures would we really have demand for libraries and 24hr concierge services in new-builds?

     

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