Finance News

Service charges on property rising significantly

Ryan - March 9, 2016

A new investigation by insurance provider Direct Line for Business has indicated that property service charges are rising at a significant rate.

According to the survey, 33% of management companies increased their fees during the last two years.

Surging

The average service charge or fee leaseholders pay to cover their share of overall building maintenance currently stands at £1,863. This alone represents more than two months of the typical income received by the average buy-to-let landlord, which at present is £906.

In addition, there are other fees to consider. These include tax on those costs, management and agent fees, mortgage payments and any ground rent fees, which currently total £371 per year for a new build. This rises slightly to £327 for a property built pre-2016.

Service charges for new build properties are substantially greater than for older homes, with the typical fee £2,777. This is a whopping 96% higher than the average for an older property. What’s more, service charge levels alter significantly between developments.

Service charges on property rising significantly

Service charges on property rising significantly

Amenities

Increasingly, the trend is growing for new build properties to include amenities including libraries, 24 hour concierge services, gyms and cinemas. In turn, service charges are rising as result, but this also offers added value for landlords looking to purchase these types of property.

Recently, developers have seen an increase in private stock which has been owned by freeholders subject to service charges. Owners of freehold properties located on private roads or estates are being charged for general upkeep of roads and gardens. One example is shown by owners of four-bedroom properties situated on a development in Guildford being charged £900 per year for the upkeep of their roads and communal gardens.

The way of calculating service charges also varies between the type of developments. Sometimes, it is a flat rate for all home. In other cases, charges are worked out by the number of bedrooms or the square footage of a property.

Hidden

Nick Breton, Head of Direct Line for Business, notes, ‘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.’[1]

[1] http://www.propertyreporter.co.uk/landlords/surging-service-charges-add-pressure-to-struggling-landlors.html