Service fees are insane.

somerandomusername

So I'm looking at a leasehold flat that was built in 2008 for £65,000 and at the time the annual service charge was £958. Now it's £1,875, that's a 4% increase per year on average. That's £22,700 over a 17 year period.

If I were to buy the flat with the intention of living in it for 20 years, I'd be paying £55,000 in service fees! That's 42% of what the property is currently worth today. So when I come to sell it in 20 years time I'd need to sell it for £185,000 just to break even essentially. 

Even if I manage to sell it for £250,000 that's only a £65,000 profit, which over 20 years works out at 1.52% annually, which is diabolical. Not to mention the lease is losing 20 years worth of value.

And all this assumes there's no massive one off charges from the management company in the event of a major work being carried out or a spike in costs for maintenance or whatever.

Now I know where the term "fleecehold" comes from 😲

RedFraggle

That's not what "fleece hold" is at all. It's about estate maintenance charges on freehold properties. 
Service charges vary wildly. To keep them cheap avoid lifts, concierge, gym, large blocks run by big corporates. Look for share of freehold or self run blocks

MikeJXE

Never a good idea to buy leasehold imo 

Chief_of_Staffy

somerandomusername said:

So I'm looking at a leasehold flat that was built in 2008 for £65,000 and at the time the annual service charge was £958. Now it's £1,875, that's a 4% increase per year on average. That's £22,700 over a 17 year period.

If I were to buy the flat with the intention of living in it for 20 years, I'd be paying £55,000 in service fees! That's 42% of what the property is currently worth today. So when I come to sell it in 20 years time I'd need to sell it for £185,000 just to break even essentially. 

Even if I manage to sell it for £250,000 that's only a £65,000 profit, which over 20 years works out at 1.52% annually, which is diabolical. Not to mention the lease is losing 20 years worth of value.

And all this assumes there's no massive one off charges from the management company in the event of a major work being carried out or a spike in costs for maintenance or whatever.

Now I know where the term "fleecehold" comes from 😲

Don't look at it any more and your problem will be avoided. Leasehold is a scam. They recently converted a fine old building near where I used to live into flats with services charges so high a person would need to be certifiable to buy one. Even the ones in the low £200k's have service charges up to £4k. And that's in the north.

eddddy

Just for balance...

The service charge is your share of insurance costs, maintenance costs, repair costs, plus a management fee.

If you owned a freehold house for 20 years, you'd also have to pay insurance costs, maintenance costs and repair costs.


So you need to take that into account, if you're trying to compare ownership costs of a leasehold flat vs a freehold house.



Edit to add...

somerandomusername said:

So I'm looking at a leasehold flat that was built in 2008 for £65,000 and at the time the annual service charge was £958. Now it's £1,875, that's a 4% increase per year on average. 

And when a block of flats is brand new, you would expect it to need very little maintenance and repairs during its first year - so the service charge was low in year 1.

Plus it probably had a 2 year builder's warranty - so any faults that emerged should have been fixed by the builder for free.

But now the warranty has expired - and the building is 17 years old, it will probably need more money spent on upkeep. (Just like a 17 year old freehold house would)

somerandomusername

eddddy said:

Just for balance...

The service charge is your share of insurance costs, maintenance costs, repair costs, plus a management fee.

If you owned a freehold house for 20 years, you'd also have to pay insurance costs, maintenance costs and repair costs.


So you need to take that into account, if you're trying to compare ownership costs of a leasehold flat vs a freehold house.



Edit to add...

somerandomusername said:

So I'm looking at a leasehold flat that was built in 2008 for £65,000 and at the time the annual service charge was £958. Now it's £1,875, that's a 4% increase per year on average. 

And when a block of flats is brand new, you would expect it to need very little maintenance and repairs during its first year - so the service charge was low in year 1.

Plus it probably had a 2 year builder's warranty - so any faults that emerged should have been fixed by the builder for free.

But now the warranty has expired - and the building is 17 years old, it will probably need more money spent on upkeep. (Just like a 17 year old freehold house would)

Well I've done building and contents insurance quotes on what a freehold house would cost and I've seen estimates of just £12.50 per month. And regarding paying for repairs, the freeholders of the flat would only pay for repairs to the exterior of the building anyway... So a burst pipe in your flat, mould, wear and tear is still your responsibility to pay for.

When it comes to paying for repairs to the exterior, most homes generally speaking require very little in the way of exterior repairs, and even if it did need emergency repair the insurance would cover that. Like if a storm ripped your roof off or a falling tree hit your home and destroyed some of the brick work. 

I lived in a freehold house growing up for 19 years and I think the only repair I remember my parents paying for was to replace the gutter that my brother accidently broke when he booted the ball up at it haha.

itsthelittlethings

I live in a leasehold block of flats, it’s around that per year. I don’t feel I’m being ripped off, they send a breakdown of what they spend it on every year.

eddddy

somerandomusername said:

Well I've done building and contents insurance quotes on what a freehold house would cost and I've seen estimates of just £12.50 per month. And regarding paying for repairs, the freeholders of the flat would only pay for repairs to the exterior of the building anyway... So a burst pipe in your flat, mould, wear and tear is still your responsibility to pay for.

When it comes to paying for repairs to the exterior, most homes generally speaking require very little in the way of exterior repairs, and even if it did need emergency repair the insurance would cover that. Like if a storm ripped your roof off or a falling tree hit your home and destroyed some of the brick work. 

I lived in a freehold house growing up for 19 years and I think the only repair I remember my parents paying for was to replace the gutter that my brother accidently broke when he booted the ball up at it haha.

I'm not defending unreasonable service charges in any way. But take a look at at the service charge accounts to see what money is spent on things like:

• Insurance
• Painting external window frames and doors (if they are timber)
• Cleaning the communal areas
• Re-decorating the communal areas
• Electricity for communal areas
• Clearing gutters
• Gardening / cutting the grass
• etc etc etc

And see which line items you think are unreasonable.

I imagine your parents probably did things like cleaning, gardening and maybe re-decorating themselves, rather than hiring contractors to do it.

Obviously, it's cheaper to do DIY rather than hiring contractors, but it's not generally feasible to do that with blocks of flats.

For example, it's probably not practical to say to a freeholder "Don't hire contractors to paint the communal areas and/or the window frames. Instead us flat owners will get together and do it ourselves."

It could even be problematic to say to the freeholder "Don't hire contractors to clean the common areas, us flat owners will take it in turns to do the cleaning".  Because if the cleaning isn't done properly (or somebody slips on a wet floor), it's likely that the freeholder has some liability.

Sometimes people argue that freeholders hire very expensive contractors (e.g. to do painting and decorating), but again, there are reasons for that.

 

somerandomusername

eddddy said:

somerandomusername said:

Well I've done building and contents insurance quotes on what a freehold house would cost and I've seen estimates of just £12.50 per month. And regarding paying for repairs, the freeholders of the flat would only pay for repairs to the exterior of the building anyway... So a burst pipe in your flat, mould, wear and tear is still your responsibility to pay for.

When it comes to paying for repairs to the exterior, most homes generally speaking require very little in the way of exterior repairs, and even if it did need emergency repair the insurance would cover that. Like if a storm ripped your roof off or a falling tree hit your home and destroyed some of the brick work. 

I lived in a freehold house growing up for 19 years and I think the only repair I remember my parents paying for was to replace the gutter that my brother accidently broke when he booted the ball up at it haha.

I'm not defending unreasonable service charges in any way. But take a look at at the service charge accounts to see what money is spent on things like:

• Insurance
• Painting external window frames and doors (if they are timber)
• Cleaning the communal areas
• Re-decorating the communal areas
• Electricity for communal areas
• Clearing gutters
• Gardening / cutting the grass
• etc etc etc

And see which line items you think are unreasonable.

I imagine your parents probably did things like cleaning, gardening and maybe re-decorating themselves, rather than hiring contractors to do it.

Obviously, it's cheaper to do DIY rather than hiring contractors, but it's not generally feasible to do that with blocks of flats.

For example, it's probably not practical to say to a freeholder "Don't hire contractors to paint the communal areas and/or the window frames. Instead us flat owners will get together and do it ourselves."

It could even be problematic to say to the freeholder "Don't hire contractors to clean the common areas, us flat owners will take it in turns to do the cleaning".  Because if the cleaning isn't done properly (or somebody slips on a wet floor), it's likely that the freeholder has some liability.

Sometimes people argue that freeholders hire very expensive contractors (e.g. to do painting and decorating), but again, there are reasons for that.

 

I understand that collectively as a "housing project" it may cost £155 from every flat (there's 306 flat) so that's about £570,000 per year to maintain everything. But as an individual flat it's hard to see £155 worth of work actually being done.

Grass cut once per month? Hallways mopped once a week, electricity is often motion detected so it's off most of the time. Gutters cleaned once a year. Redecorating one every 5 years.

I'm guessing the largest component is the buildings insurance, that's probably what eats up 70% of the cost. 

Chief_of_Staffy

I made the mistake of buying a leasehold some years back. Nice enough for the time I was there, but the charges were basically a scam. £60 a year for window cleaning (£120 in today's money), which consisted of a bloke prod a brush on a pole once against each window, leaving a mark. I mean that literally, a single dab of dirty water on each window pane, and that happened no more than twice a year. I could tell when he'd been because it looked like a bird had flown into the glass.

We paid more than that for 'fountain and plaza maintenance', which apparently cost £60k per year total. In reality the figure would have been nearer £2k. Nice, but neither plaza nor fountain were visible from our windows, being 100 yards away surrounded by very expensive apartments and accessed by means of a palatial archway. Oddly enough, the gardens outside our window, which everybody had to walk through to exit or enter the development on foot, were paid for only by us residents in the immediate vicinity.

Leasehold is a racket by definition, and is highly unlikely to work out in your favour.

eddddy

somerandomusername said:

I understand that collectively as a "housing project" it may cost £155 from every flat (there's 306 flat) so that's about £570,000 per year to maintain everything. But as an individual flat it's hard to see £155 worth of work actually being done.

Grass cut once per month? Hallways mopped once a week, electricity is often motion detected so it's off most of the time. Gutters cleaned once a year. Redecorating one every 5 years.

I'm guessing the largest component is the buildings insurance, that's probably what eats up 70% of the cost. 

As I say, take at look at some service charge accounts to see what money is being spent on.

Yep - I agree that buildings insurance costs for blocks of flats seems disproportionately expensive compared to houses.

One reason seems to be the huge amount of "escape of water" claims associated with flats, and issues following the Grenfell tragedy. 

Also, block of flats insurance is more complex to arrange, and it usually has to be arranged by an insurance broker - which pushes up costs.

There is also the issue of "hidden commission" paid to freeholders, but new FCA rules should be addressing that.

Chief_of_Staffy said:

We paid more than that for 'fountain and plaza maintenance', which apparently cost £60k per year total. In reality the figure would have been nearer £2k. Nice, but neither plaza nor fountain were visible from our windows, being 100 yards away surrounded by very expensive apartments and accessed by means of a palatial archway. Oddly enough, the gardens outside our window, which everybody had to walk through to exit or enter the development on foot, were paid for only by us residents in the immediate vicinity.

Again - just for balance...

Your lease would have said you have to pay a percentage share of maintenance of the fountain, plaza, palatial archway and gardens.

And you should have read the lease before buying it. If you didn't want to pay for those things, you could have walked away and bought somewhere else - without a requirement to pay to maintain a fountain, plaza, palatial archway and gardens.