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Services charges on an over 55's flat
Comments
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Thomas_Holding said
A friend is buying on these - how can they be sure that the service charges won't go increase a lot in 10-20 years?
You need to read the lease to see what the service charge covers - and then make an assessment of how much the service charge might increase, based on that.
For example, the service charge probably covers repairs and maintenance of the roof. So you need to make an assessment of the condition of the roof (maybe get a survey). If the roof might require major maintenance or replacement in the next 10 to 20 years, that might cause a large increase in service charges.
But you also should check things like…
- Check the lease for any details of "deferred service charges" (sometimescalled an "exit fee"). i.e. You pay a reduced service charge while you own the flat, then pay a lump sum when you sell.
- The amount in the sinking fund. If major work is envisaged (like replacing the roof), prudent management companies / freeholders might save up a fund of money over the years, in order to pay for it. So you should investigate how much has been saved up so far.
Also…
Leases for retirement properties often give the management company many more responsibilities. For example, the management company will deal with plumbing problems in flats (like leaks, blocked sinks and toilets), heating problems in flats, electrical problems in flats, etc. This all increases the service charges.
As an example, I spoke to a retirement flat leaseholder who had 2 old storage heaters replaced by the management company - which were paid for out of service charge funds. If the leaseholder had replaced them themself, it might have cost £1.5k to £2k.
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Flats can also be freehold too, in Scotland in particular
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Retirement properties can be a nightmare for service charges - it's extremely important to read and understand all of the documentation relating to them.
Having said that, there are some companies running these places that are "not for profit" (we've recently moved my father in law into one of these which is run by Cognatum Estates).
The service charges for retirement properties seem expensive at first glance but it can be surprising just how much is covered by it.
Yes - there is always going to be a problem in re-selling these properties when the time comes and the need for the estate to pay out service charges until it is sold but, if you lower expectations and set the price right, then anything will sell quickly.2 -
Very true although sadly a small minority in London (not sure about the rest of the UK).
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MyRealNameToo said
Flats can also be freehold too, in Scotland in particular
Freehold flats (in England/Wales) are "white elephants" - you shouldn't touch them unless you know what you're doing.
120+ mortgage lenders were asked "Does the lender lend on freehold flats?" and just about all of them replied "No".
The only notable exception seems to be Natwest/Royal Bank of Scotland group, who will lend if there are enforceable maintenance covenants.
(But tbh, if there weren't enforceable maintenance covenants, you'd probably be mad to buy a freehold flat anyway.)
Here's the list of 120+ mortgage lenders and their answers:
Owners of freehold flats are generally advised to club together and convert them to leasehold.
(Or do you mean "share of freehold flats", or "a leasehold flat where you also own the freehold of the building"? They're both very different to "freehold flats".)
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No I meant freehold as per the reference to Scotland where leasehold basically doesnt exist (there are certain reports of a tiny number of something very similar to leasehold). Lenders will be more comfortable in Scotland given the statutory obligations on shared repairs.
Presumably lenders are more comfortable with commonhold?
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Are there many commonhold properties?
No reliance should be placed on the above! Absolutely none, do you hear?0 -
MyRealNameToo said
Presumably lenders are more comfortable with commonhold?
No - it seems not at the moment (in England and Wales). Here are the mortgage lenders replies to the question "Does the lender lend on commonhold?"…
The government want to make Commonhold the standard for flat ownership, so I guess the mortgage lenders will need to get their act together on this.
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I'm concerned that these flats for seniors may end up becoming the kind of moneypits that timeshare holiday lets currently are already.
There is no honour to be had in not knowing a thing that can be known - Danny Baker4 -
My son's f-i-l bought an over 55s flat because it was cheap. Then after a few years he could not afford the service charges and put it up for sale. He did sell it but at a loss. He couldn't afford to buy anything else and now has (thankfully) a HA property.
So be aware.
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