Rising service charges of London flats

Killer167

Hello all
An article came out on the Financial Times this weekend regarding skyrocketing service charges in Ballymore developments in London. Unfortunately I cannot post the link as I am a new member, but in short it speaks of the unusual increase in service charges of about 10 - 30% annually (with a drastic example being 77% in four years), persistent maintenance issues, residents feeling trapped. This has really spooked us as we are FTBs and currently in the process of purchasing one of their newer developments. We understand that service charges are a part of the costs of living in a London leasehold flat, but not at over 70% in a few years time as this research states for their other properties. Was wondering whether anyone has lived or is living in one of their buildings and what your experiences are? Is anyone able to provide some advice on service charge increases in general and whether something like this is normal for London? 
Much appreciated!

Owleyes00

Are you buying the whole thing or is it a shared ownership scheme? There was a panorama programme on this a few weeks ago “the home I can’t afford” on iPlayer. From what I understood from this, unless there are contracts that say otherwise, the housing association can put up ground rent and maintenance charges by whatever they want. Buyer Beware.

Killer167

Thanks! Will check out the program. We are purchasing the leasehold outright, i.e. not a shared ownership scheme.

princeofpounds

Owleyes00 said:

 the housing association can put up ground rent and maintenance charges by whatever they want. 

Incorrect, especially on the ground rent point. With regards to service charges, the truth is more complicated - it is possible to challenge service charges at Tribunal, but for a variety of reasons it is often difficult to enforce good management.

Killer167 said:

Hello all
An article came out on the Financial Times this weekend regarding skyrocketing service charges in Ballymore developments in London. Unfortunately I cannot post the link as I am a new member, but in short it speaks of the unusual increase in service charges of about 10 - 30% annually (with a drastic example being 77% in four years), persistent maintenance issues, residents feeling trapped. This has really spooked us as we are FTBs and currently in the process of purchasing one of their newer developments. We understand that service charges are a part of the costs of living in a London leasehold flat, but not at over 70% in a few years time as this research states for their other properties. Was wondering whether anyone has lived or is living in one of their buildings and what your experiences are? Is anyone able to provide some advice on service charge increases in general and whether something like this is normal for London? 
Much appreciated!

Hi OP. There are unfortunately lots of angles to consider when looking at stories like this.

The first is that service charges on new developments do tend to rise from the initial level. The largest portion of service charges is for maintenance, and maintenance needs on a freshly-built building are normally very low, and then increase over time. In addition, whilst the developers are still on site, trying to sell properties etc., you'll often find that they cross-subsidise maintenance costs in the initial period. That's partly for good reasons, but it also allows them to claim low initial service charges. 

Then you get to the question of the competence and integrity of the managing company/agent. Sometimes the incentive is to spend more, either because it permits higher service fees as a % of the service charge, or because it provides more work for associated contracting firms. 

It is much harder to reassure yourself on this last point when a development is new, as there is no history of behaviour.

So you have to be cautious about these things, realise that there are always risks.

AdrianC

The article is here.
https://www.ft.com/content/b135b814-dc9e-4abc-bb64-f378d11179d8

Some quotes from it...
"One resident, who bought his flat in Embassy Gardens in 2015, said his service charge had increased 58 per cent since then to an annual charge of just over £6,500. “It just feels like I am a cash cow in my own home,” he added. “I am liable for a service charge that goes up 10-15 per cent per annum and I cannot reduce or opt out of it. I don’t think I will ever buy leasehold again.” "
https://www.embassygardens.com/
Facilities include pool, gym, spa, cinema, exotic gardens... It's just next door to the new US Embassy in the very heavily refurbished Nine Elms.

"...a resident at New Providence Wharf, a development on the banks of the Thames in east London, whose service charge rose 77 per cent to just over £9,000 over the past four years"
https://www.ballymoregroup.com/project/detail/new-providence-wharf
https://www.johnsand.co/development/new-providence-wharf/ - 
Facilities include 24x7 concierge, on-site management team, gym, spa, pool...
"On the banks of the Thames in East London" - it's right next to Canary Wharf, directly opposite the Minnellium Doom O2

Service charges are your portion of the cost of maintaining the building and the facilities. How on earth did they think these facilities are paid for? They want all the bling and trappings, but haven't thought about how it gets provided.

Think about some of the factors that may have affected the costs of maintaining blocks of flats in London over the last few years... Then think about how these kind of figures will apply to the vast majority of flats that aren't in quite such premium locations, and don't have quite so many premium facilities.

eddddy

As above, you probably need to look beyond those kinds of headlines, and consider carefully what you are buying into.

For example, New Providence Warf has a 24/7 concierge - so that alone means 4 of 5 full-time salaries. A residents swimming pool - I imagine the annual costs of heating, servicing and maintaining a pool are huge. Plus a residents gym, etc, etc.

If you want that kind of 'luxury' it's going to be expensive. So, for example, you shouldn't buy a leasehold property with those kind of cost commitments, unless you're comfortable that you can afford them.


The leaseholders at New Providence Warf also complain that repair costs are high because of poor workmanship by the builders. Unfortunately that's a risk you take when you buy any property - whether it's a freehold house or leasehold flat.  With a newbuild house or flat, the builder usually provides a 2 year warranty (and 10 years for major structural issues), but once the 2 years are up, you have to cover the cost of any further repairs. Or if you buy an older house or flat, there is no warranty period at all.

So check the reputation of the builder - do they have a history of poorly built properties that need a lot of expensive repairs? If so avoid them. Also check the condition of the buildings etc before buying. Do they look like they might need expensive maintenance soon?

yllop1101

I wonder how much of these charges are skewed/inflated by EWS1 remediation, i.e. if buildings have had to have expensive cladding removed, fire breaks added or waking watch systems. 
OP, is the building you're buying EWS1 compliant? Does it have any of the risk factors which can be costly with EWs1, i.e. balconies with combustible materials, cladding, over 5 stories high? 
These, in addition to the luxury facilities, are all things which will impact service charges. 

Killer167

Thanks so much everyone - you all make some really great points.

I guess we knew that things are going to be expensive when purchasing these luxury flats, and so there will need to be a lot of consideration as to affordability at least a few years down the track, and afterwards keeping track of costs charged. As the flat we are looking to purchase is a newer development it may be a case of trying to keep on top of things and being aware of any issues early. The article came across as there being some shady acts done by this particular developer which was a concern, but it seems the issue spans across the board of modern London flats. 

princeofpounds

Flats anywhere, to be frank.

Just bear in mind that a 5k service charge, capitalised a 2% mortgage interest, is the equivalent of an extra 250k capital cost on a building.

But, to be fair, if you buy e.g. a freehold house, you will have to pay for your own maintenance, which in a flat you do not, to the same degree (separate to the service charge, I mean).

Killer167

yllop1101 said:

I wonder how much of these charges are skewed/inflated by EWS1 remediation, i.e. if buildings have had to have expensive cladding removed, fire breaks added or waking watch systems. 
OP, is the building you're buying EWS1 compliant? Does it have any of the risk factors which can be costly with EWs1, i.e. balconies with combustible materials, cladding, over 5 stories high? 
These, in addition to the luxury facilities, are all things which will impact service charges. 

Yes so an EWS1 (rating of B1) certificate was issued for the building last year - so although it does contain combustible material, no remediation work is required. We're not sure though whether the other buildings in the development are compliant.