Service charge on freehold house - AIBU to ask for your thoughts?

[Bellsandwhistles202]

OH and I are looking to buy in London and hoping to get somewhere as central as possible.

However, we realise this might be pretty tricky, as we’re after something where we’d have the freehold and that’s also reasonably spacious, as we’d like to stay for the next few years at least and are looking to start a family in next few years.

We’ve found a 4-bed house around Camberwell/Peckham area where we’d be the freeholders, and it’s pretty central (30 mins bus to Borough in one direction, where I work, and an hour’s walk to Victoria/20-30 mins by train/bus for OH’s work).

However, because the house is on an estate, a service charge is included: this covers heating and hot water as well as buildings insurance and maintenance.

We both really liked how the house looked, and how central it is, and have booked in a viewing, although the service charge seems very pricey (was stable for around 5 years, at £2k, and then went up quite a bit last year to £3k).

Considering the service charge covers hot water, heating, insurance and repairs, and the house is so central, what do you reckon? Is it a crazy idea to even consider the house?

I realise I’m thinking very long-term here, considering we’d both want to stay in the house for a while if we ended up buying it, but I’m wondering whether a high service charge (that has potential to increase in the next few years) would put off potential buyers, or if the fact the house is so central and spacious would make up for the high service charge, as well as the fact it includes heating hot water and building repairs?

The viewing will certainly help us make up our minds further, as well have a better picture of the whole house too, but the service charge is the main sticking point for now.

Thanks all!

I wouldn't buy a house with a service charge on the house itself. I pay a service charge to a company that cuts the grassy areas on the estate, but that's as much as I'm willing to put out money for. With the heating, insurance etc, you've no idea if you're getting the best deal, and it doesn't sound like you are. You could pay a lot less on your own with your own bills.

Sorry if I'm not getting this or making any sense, I've got a migraine.

@KeepingPlain

I wouldn't buy a house with a service charge on the house itself. I pay a service charge to a company that cuts the grassy areas on the estate, but that's as much as I'm willing to put out money for. With the heating, insurance etc, you've no idea if you're getting the best deal, and it doesn't sound like you are. You could pay a lot less on your own with your own bills.

Sorry if I'm not getting this or making any sense, I've got a migraine.

I agree. When you say includes heating do you mean just the servicing if something goes wrong? I pay British Gas £14 a month for boiler and central heating cover, £160 a year for buildings and contents, and £120 a year estate charge for the communal gardens and drains.

Wow that seems high OP. Is it part of the dulwich estate or something?

We have a share of freehold (victorian conversion) and pay £75/m for gardener and insurance but the pot accrues money off this.

We nearly bought a flat that was £120 (part of the dulwich estate) but that only covered the grounds keeper and maintenance.

If ibwere you I'd want a full breakdown of what the charge covers and why it went up so much. Because a 4 bed in Peckham is probs going to be costing at least £750k and to be shelling out a further £250/m service is a lot!

Sorry the flat we nearly bought has a service charge if £120/m, my post wasn't clear.

Also check what your liable to pay out extra for e.g do any of the other buildings have lifts? And would the houses on the estates be liable to pay a share towards them if they needed replacing?

We live in a freehold with a service charge towards the shared gardens and electricity for the road lights. I am comfortable with it because the management company is owned by the residents, so it's in everybody's interest to strike a balance between spending money to keep things nice and keeping costs under control.

A faceless management company who can raise the charges arbitrarily whenever they like? No way.

Hi everyone, thanks very much for your quick replies!

The property is actually on the market for quite a bit lower than £700/750k, although it’s very central and has lots of space - which made me wonder if it’s too good to be true, and if its lower price is due to the fact the service charge is unpredictable.

From doing some searches online, it looks like the service charge is paid to the local council, rather than paid to a management company owned by the estate’s residents. It’s also not clear what we’d be liable to pay for with the service charge, so we’ll check that with the estate agent at the viewing (and the current homeowner, if they’re at the viewing).

OH and I agree with previous posters on here that, due to the service charge, we might end up paying a lot more for heating/hot water than we should, which is also a concern.

Check how much and how often they can increase the charge. There was a report not that long ago, I seem to remember, of service charges on new build estates raising by something like 50% every 5 or 10 years (or it could even have been 100%).

You’d need to find out how they calculate the charge and what it covers. What building repairs? Are there communal areas? How old is the property and do they have any works scheduled eg are you going to cough up £15k in 2 years to repair a roof? As a pp mentioned, you’d need to see how much you’d be paying for utilities/insurance and if it was a reasonable amount. It should say somewhere in the title (maybe in the Transfer?) or there may be a separate bundle of management company paperwork that will contain all the info you need. You need to check how much the service charge can be increased by per annum, if that amount can be challenged, what you would be covered for in the insurance, any additional charges there might be (there may be leasehold type fees associated with the property) and what you will be liable for. Lots of questions and it would definitely put me off buying!

If a house is cheaper than it should be, it's nearly always not a good reason. Run away. Other people are avoiding it for a reason.

You need to find out what exactly it covers and what you’ll still need to pay out for as £3k for heating, buildings insurance etc is a lot. It’s not unheard of to pay a service charge even on a freehold. My MIL pays one but this is for a new build house in a new street so all the owners are liable for the road repairs etc as it’s a private road.

Can you research the history of the pricing for the house? And it in comparison to others in the estate? I would be hesitant about why it was so low in comparison to other houses in the area

Be very very careful. If you are Southwark council owned they are notorious for fleecing private owners n estates with mixed ownership. People have been presented with bills for tens and tens of thousands of pounds to cover repairs and renovations. Very little in the way of accountability.

The fact it has gone up so much concerns me. I would not like the idea of writing a blank cheque that could be passed from management company to management company. It's getting close to fleece hold territory.

I have a freehold house on a private estate, we pay £30/month which covers road repairs, road repairs, limited building repairs, gardens and tree maintenance.

Is this a new-build estate of privately owned houses or is it an old house on a former council estate? There can be various problems with the council and you can be tied into them, with the latter. With the former, is it one of those developer's rackets, meaning a way of fleecing buyers and leaving you open to future massive increases?

Keep in mind that it is a huge sum of money you are laying out, so think long and hard before you leap.

Thanks so much for your posts, everyone.

I really loved the photos of this property and was a bit blinded by how central it was and how nice the photos were to acknowledge how much of an issue the service charge was - I just thought we could prioritise it in our monthly costs for the property, like council tax/utility bills, but was very concerned it would go up further.

We both became more and more concerned, so have cancelled the viewing of the property. It’s a shame but was just not worth the risk of paying a crazy charge if we moved in in and/or if it sky-rocketed by the time we went onto sell it ourselves in a few years time.

@Belleende yes it is is Southwark 😔 I was initially slightly reassured (as strange as that may sound!) that it wasn’t a private company in control of the service charge, however I can see that having a council in control isn’t much better at all! What also eventually put us off was a bad experience one of my friends had (also with Southwark council, incidentally) where she had mould growing in the ex-council flat she rents, and the council dragged their feet over dealing with it after saying they would deal with it and saying they were responsible for dealing with it (pre-Covid). Definitely not worth the hassle!