Service charge query

Jess45

Hi all,

I'm a first time buyer looking to buy a flat in South London. A lot of the flats have service charges included in the cost and I was wondering if a high service charge would put people off. Especially thinking about resale value further down the line.

I have seen one flat that has a service charge of £187, it does have a parking space but the rest of that is for building maintenance. Would this put you off buying?

Thanks

277Hz

I assume you mean £187 per month, so £2,244 per year? That does seem on the high end. Typical service charges I have seen in our area of SE London are in the range 1.5-2k.

We are currently selling our flat with a service charge of £2k per year which I think is on the high end and has put a few people off but wasn't a game changer as we had two good offers fairly quickly (first pulled out for an unrelated reason).

It was closer to £1.5k when we bought it, so things I would ask are: how consistent has the service charge been over the last few year, has it increased over the years? How much is in the 'sinking fund' (the pot of money carried over each year)? Is there also a ground rent to pay on top? Have any additional requests for funding for repairs happened recently? How is service charge paid (sometimes it's requested in a single payment or twice yearly payment) etc. 

Also have a good look around on the viewing at the building and common areas and see if its in good condition. If the service charge is high but it means the building and common areas are really well looked after it may be less of an issue.

princeofpounds

£187 - are you missing a zero? Or is that monthly?

Service charges are not set in stone. They are payments to fund things like building insurance, building maintenance, major works, a sinking fund etc. They vary year by year, decided by the freeholder within the parameters set by the lease. Sometimes by a lot, if major works need funding, or something else changes. 

So yes, high service charges do tend to put people off, but it depends entirely on what you get for that money. If your building has a porter, a gym or similar facilities, it will tend to be more expensive on a consistent basis, but some people want those things. If your building has just been through a major upgrade to e.g. windows and re-roofing then the service charge for the last three years may be high, but it will be lower going forward for a better building. 

Generally sensible buyers try to estimate the cost/benefit but it can be hard to get firm, granular understanding of what's going on.

If you buy a property with an unreasonably expensive service charge, you would assume it would be relatively cheaper to buy in the first place, the other side of the coin being that it will need to be similarly cheaper to sell.

But generally it's often better avoiding building where the service charge is unreasonably high because it can be a symptom of rotten freehold management in general.

Jess45

Thanks for the detailed reply.

It's £187 a month which seems on the steep side. It doesn't have a porter or a gym I think a lot of cost is for general maintenance and a sinking fund.

eddddy

I guess that to make a fully informed decision, you need to find out exactly what the money is being spent on.


For example, you mention a sinking fund - maybe £100 of the £187 is going into that sinking fund, and it may already contains thousands.  So you won't have to pay out anymore when the outside of the building is repainted, the carpet in the communal hall is replaced, the entryphone system needs replacing, etc.


Whereas, you find another flat with a monthly service of £80 (with no sinking fund contribution) - but you'll have to pay out a few hundred, or maybe a thousand or two, each time a big job is required (repainting, re-carpeting, new entryphone etc).



And/or, maybe the £187 includes stuff like window cleaning, communal area cleaning, tending the communal garden areas etc.

You might prefer to live in a place with a slightly higher service charge which is well looked after, than somewhere else with a slightly lower service charge - with dirty windows, dirty communal areas, untidy garden etc.

LAD917

It's hard to compare raw numbers without knowing what's behind them. In addition to amenities, there is also the "pay now" v. "pay later" question.  E.g., does the building maintain a large sinking fund to cover repairs and keep service charges stable over time, or does the building run the risk of huge spikes to cover periodic repairs or redecoration?  You won't find general agreement on which approach is better.

In my recent central London search, I came across service charges - on similarly priced properties - ranging from £600 per year to £6000 per year (with no lift or amenities).  The £600 per year was a self-managed building where the service charge paid for basically insurance and nothing else, with no sinking fund. The £6000 was from a similar building that kept service charges very low (in the £1200/year range), then needed to do facade and roof repairs.  The buildings weren't different in approach - it was basically the moment in time that caused the 10x service charge difference. The building with £600 service charges could well have £6000 service charges in a year or two, and the one with £6000 service charges might well go back down toward £1200 a year.

I tend to prefer buildings that try to maintain a consistent service charge over time, with a sinking fund to cover normal cyclical works, but a lot of people feel like future owners should fund future works. 

I don't mind buildings with higher service charges, as long as there's a sinking fund and as long as the building seems otherwise well-run. I do, however, look at service charge proportions, and shy away from buildings where I'm paying for amenities I won't use -- e.g., lower ground or ground floor being charged equally for a lift.

cattie

I live in a suburb on the edge of SE London/Kent & in my area most service charges are somewhere between £1700-£2000 per year. We currently pay around £1900 per year, but do have extensive & well looked after grounds plus there is a sinking fund & maintenance & upkeep of common parts is done on a regular basis. Oh & each flat does have a garage too.

I'd be reluctant to consider a place with a current service charge in excess of £2200, so yes a higher than average service charge is bound to put some people off.

bouicca21

I’d want to know what you actually get for the money.  If maintenance is fairly minimal it’s a lot; if you have beautifully maintained common areas, or a need for a lot of repairs, maybe it isn’t.