- The average annual property service charge in Britain is £1,863
- The service charges for new builds are 96 per cent higher than older properties and average £2,777
- A third (33 per cent) of management companies have increased service charges in the last two years
- Service charges vary between £1.55 per square foot to £7 per square foot
New research by Landlord insurance provider, Direct Line for Businessre[1], reveals property service charges are rising rapidly with a third (33 per cent) of management companies increasing these fees in the last two years.
The average service charge or fees leaseholders pay to cover their share of the overall building maintenance, now stands at £1,863. This cost alone represents more than two months of the average monthly rental income received by landlords, The average UK rental value excluding London was £740pcm - this is 5.5% higher than last year (£702pcm) [2] . In addition to this, they will also have other costs to think about such as paying tax on these monies, mortgage payments, management and agency fees and any ground rent fees which are now on average £371 a year for a new build and £327 for a property pre-2016.
The service charges for new build properties, coming on the market in 2016 are significantly greater than for older dwellings at £2,777. This is 96 per cent higher than the average for an older property. Service charge levels also vary markedly between developments. One new build development coming onto the market in Croydon in 2016 will see home owners paying £1.55 per square foot in service charges, while a development in Lambeth coming onto the market in 2017 is charging four and a half times more at £7 per square foot.
There is an increasing trend for new builds to include amenities such as libraries, 24 hour concierge services, gyms and cinema rooms that is contributing to the increased cost of service charges, but also offers added value for landlords looking to invest in this type of property.
Recent moves by developers have seen more private housing stock owned by freeholders subject to service charges. Owners of freehold properties situated on private roads or private estates are being charged for upkeep of roads and gardens. In one example owners of every four-bedroom property situated on a development in Guildford are charged £900 a year for upkeep of the road and communal gardens.
Nick Breton, Head of Direct Line for Business says: “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
“Direct Line for Business’ free Mobile Landlord App can help landlords keep a track of expenditure, when charges are due to be paid and the impact on the yield of a property.”
The method for calculating service charges also varies between developments. In some cases it is a flat rate for all properties, while for others it is determined by the number of bedrooms or the square footage of a property. Service charges usually cover repairs to communal areas of a development such as windows, drainage and the roof. They may also be used to establish a sinking fund for major renovations. In some cases they are also used to pay for shared services such as gardeners, landscapers, concierge services or cleaners.
1 Researchers for Direct Line for Businesses conducted research amongst estate agents and property managements companies identifying the ground rent and service charges for over 100 developments across the UK
Mr Breton went on to blame the increased costs of service charges on a trend among new builds to include luxury amenities such as libraries, 24 hour concierges, gyms and cinema rooms.
He urged those buying a flat to factor management charges into their running costs budget, which also needs to include ground rent - which is £371 a year on average for a new build and £327 for an older property, according to the research.
It found that the typical annual service charge of £1,863 on older properties is the equivalent of twice the average monthly rent of £906, the research added.
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