To be really worried about selling my flat?

[Goodvibes12]

I currently live in a lovely 2- bed flat in a good area of London in a period block on a quiet cul-de-sac. No plans to sell at present but I will want to in the next year or so. Estate agents have valued the place at more than I bought it for, which is good - but I'm really worried buyers will be put off by the high service charge.

The service charge is £3,400 per year. This includes (in addition to all the usual things like common area upkeep) all heating and hot water, a live-in caretaker, off-street parking and bike storage and nice, well-maintained communal gardens which you can actually sit in and use for drinks, barbecues etc. However, even with all of that I'm aware that it is still high. The increases from year on year are very small but the problem is that it is already at a high level.

In addition to that, there are also bills for major works every few years, partly because it's an old building but I can't help feeling that with the service charge so high the management company should pay for some of it. I haven't had to pay any since I've been here but I've heard that they can be in the region of £3K - £8K.

Flats in the building do still sell (I believe 4 have in the past 18 months or so, including mine), and the estate agents who valued the property did feel that the service charge was high but didn't seem think it would hold back a sale - but that might just be their patter.

Any views/similar experiences would be really welcome!

The high service charges won't necessarily put people off but the fact that they apparently don't actually cover all of the expenditure will! If people are regularly paying out extra thousands in additional charges that will be a barrier to a sale. Can you find out what these additional one-off charges have been for - a new roof, unforeseen H&S expenditure etc? There should be a sinking fund in the service charge accounts which holds money for major expenditure like this but sometimes it doesn't cover everything. I'm not quite sure what your point about the management company paying for some of the additional works is - they are there to manage the block and administer these funds, they are not going to, nor is their function to, contribute funds for works from some mystery pot! All the money they are spending is yours! If you haven't had to contribute extra amounts in the time you have been there it suggests that they may now have set the charges at a level which covers most work and leaves a surplus for major work but the accounts will hopefully show that.

Yes sorry I meant paying for extra works out of a sinking fund which they should have been maintaining. And I think there is a sinking fund but maybe it doesn't cover all of the works.

You bought it. Someone else will.

You need to look at the accounts for the block, you should get them each year?

Honestly, the fact that the charge includes all heating and hot water will make it sound better. Probably a third of what they are paying will be for their energy charges. So is 2200 an acceptable charge for the rest?

Probably.

Did you buy it within the last 18 months?

Why such a swift re sell?

You should definitely check the accounts to make sure you're getting what you're paying for - I would expect £3,400 per year to include a significant contribution to a sinking fund so that most "major works" are covered.

@BernadetteRostankowskiWolowitz I'm looking to get a house soon as it's a better investment and so I won't have to worry about things like this!

@BernadetteRostankowskiWolowitz all fuelled by anxiety really. I don't actually particularly want to move other than because of this issue. I love this flat!

Haha I only ask as the prospective buyers will be interested.

Sorry but that would put me off and I wouldn’t even view it. Plenty of other people would though, I’m sure.

@BigYellowHat

Sorry but that would put me off and I wouldn’t even view it. Plenty of other people would though, I’m sure.

Would you not view it as you ouldnt view any leashold/service charge properties, or that you would, but not this one as the costs are too high?

@BigYellowHat what would put you off, the service charge in and of itself or the major works every few years?

I didn't know about the major works issue until recently and certainly not when I moved in. At that time there were some works pending but the bill was picked up by the sellers so I didn't think anything of it.

Your leaseholders management company should be giving you a statement every year showing the costs v income, and the balance brought forward on sinking fund etc.

What is the flat value & what is the service charge as a percentage of it?

Some mortgage companies are taking service charges into account when they do the affordability calculations, but so far I've only really heard of it happening on new build where the service charge is £5k+.

Hi, also in a block in a nice area of London. If I add together my service charge plus heating plus hot water, it comes to a little bit less than your charge. However, I don't have to pay for any works as extra, it's all included in my service charge. What might put me off (as well as the extra for works) is not having control of my own heating and hot water bill. What if you want to switch supplier for a cheaper deal, or you want to be frugal with heating to save money?

For me, i would compare how much I have to pay for a freehold house in your area assuming a 200k deposit vs your flat + service charge. I am a flat owner too, looking to move into a bigger flat (and many of these might have higher service charges too if the developments are larger).

Assuming flat is £600k, deposit of 200k, mortgage of £400k at 2.05% interest rate over 25 years- £1705 mortgage + (£3400/12)= £1988 per month.

Assuming a house in the same area is £1 million (as you said its a good area in London), and there are more 3 bed houses than 2 bed houses, deposit of 200k, mortgage of 800k is £3410 per month.
assuming you can find a small house that would cost less, you would need the house to cost £700k for it to make sense opting for the house and even then the mortgage would be £2100 (£100 more than buying a flat). I find it quite hard to believe that in London, the discrepancy between a flat and a similarly sized house would be a mere 100k; in my area (zone 3 north london) even for a house that is very near the north circular with the same square footage as my flat, the house is £150k more expensive; never mind for an equivalent house in a quiet cul de sac.

But this is why people buy flats in expensive areas where buying a house would be prohibitive.

When we sold our flat in a Victorian conversion our buyers solicitors asked to see the management company's accounts and for details of recent and planned major works. Your service charge should cover the majority of major works and I think you should be asked to consent to any that require further cash - though check your freehold agreement. Do you have meetings of all the owners in the block to scrutinise work and agree plans? I wouldn't buy a flat which didn't allow that.

Some potential buyers will want such a desirable flat for (occasional) business use, or buy to let, and the service charges will be entered in their tax returns for tax relief.

Service charges can be a desirable feature to some, so stop panicking.

@bakingdemon yes, the management company has to consult the leaseholders on anything extra in terms of major works.

You'll get loads of people saying "I would only buy a detached freehold house". And it's irrelevant because in your area of London, the cost of that is likely to be many times higher than a flat so it's a entirely different demographic.

You bought it. Other people have bought flats in the block recently. If the flat is priced appropriately, it will sell.

If you had two identical flats in the same area and one had lower service charges, it would likely sell for a higher price. The cost of service charges is implied in the price someone is willing to pay.

Price it appropriately and it will sell.

But you aren't even planning to sell, in which case I'd kindly say consider going to your GP for anxiety treatment because worrying so much about something you aren't even planning to do right now is not normal.

Sounds pretty standard to me for a nice block in London. Used to own similar and the agents will always give feedback saying the service charge puts people off but those in the know expect a service charge for the kind of building you’ve described. Don’t worry, you only need one buyer!

The service charge isn't that bad considering it includes heating, hot water and a caretaker. I'd prefer a sinking fund to cover major works, but others would prefer a pay as you go approach.

If you love the flat, why move? You will get away from the service charge, but have utility bills and routine and periodic maintenance to pay for, and the hassle of organising it. I would think carefully about the pros and cons of moving and flat vs. house before deciding whether to sell or stay put.

[quote Goodvibes12]@BigYellowHat what would put you off, the service charge in and of itself or the major works every few years?

I didn't know about the major works issue until recently and certainly not when I moved in. At that time there were some works pending but the bill was picked up by the sellers so I didn't think anything of it.[/quote]
It would be mainly the service charge but also the uncertainty of not knowing if there would be more money to pay out on top. I’d also be nervous about the yearly charge going up and it being uncapped.

[quote Goodvibes12]@BernadetteRostankowskiWolowitz I'm looking to get a house soon as it's a better investment and so I won't have to worry about things like this![/quote]
You still have maintenance charges on a house. You just have to manage them and pay them yourself. This year we have had to replace garden fence, £1,500, paint the outside woodwork, £1,000, replace half of our double glazing units, £2,000 (the other half to be done next year). We are waiting for the roofer to come and sort out a roof tile issue at a cost of around £1,000. This is on a house that is 22 years old, but just the age for everything to be wearing out together. All of these items would be in your flats maintenance charge. We have other maintenance inside which wouldn't be covered (new boiler, bathroom and kitchen refurbs)