House purchase and service charge worries

[HouseHunter33]

We've recently successfully had an offer accepted on our first house, which initially felt great!

It's a fairly large house in a very nice area with a good school and great transport links.

Now some problems are creeping up after getting our initial solicitor report. While it's advertised as freehold it's on a relatively new estate so has a management company, a yearly service charge (about £100), fees for management pack and becoming a member as well as numerous covenants (that seem ok).

Also we have now been told that there may be some repairs that need to be done on the grounds, but they're not sure as they are currently working out who's responsible, also no idea what the costs could be (for us £10k doesn't matter there are 150 properties in the estate, but £1M would obviously be a problem).

More potential issues that we knew before but were willing to compromise on, it's a townhouse with kitchen/living room on first floor, so not ideal and we'd want to redo kitchen and bathroom (not a big deal for us).

So this house is about £100k cheaper than similar houses in the area (probably because of the company?) in the last 15 years prices on this estate have been stagnant until this recent house boom at which point they're up about 20% (including our offer).

We would happily live here for 5-6 years until we can afford our forever home but I am worried about resale value and potential issues with the repairs. Given that we can't find a similarly priced houses for this size and area, would it be worth sucking up the management company issues for a few years or is it not worth the hassle?

I wouldn't touch it. There has been a lot of information on these service charges on new houses and none of it is good. People being stung all the time with new charges. Its either freehold or it isn't.

Dont buy leasehold and dont buy houses which are unserviced/adopted by the council.

You will regret it. And you will have a hard time selling (unless you find a mug).

I would only buy a house with a 'management company' if the company is owned by the people who own the houses, so you get a share in the company when buying the house and there are relatively few people involved.

We live in a village in a close, with seventeen other houses. We all share ownership of the management company and together organise grass cutting for the common areas and every ten years it do to have the trees pollarded. It's only us so no one is making money, it's just a way to share costs.

The seller should pay for the management pack.
The service charge is only an issue if there's a 'double every X years' type thing, though if every ten years it would only be £400 after 20 years. Then upcoming expenses are more concerning unless they are capped. Your solicitor should look very carefully at that management pack!
Can you ask any current residents of the estate about their experiences?

@maofteens

The seller should pay for the management pack. The service charge is only an issue if there's a 'double every X years' type thing, though if every ten years it would only be £400 after 20 years. Then upcoming expenses are more concerning unless they are capped. Your solicitor should look very carefully at that management pack! Can you ask any current residents of the estate about their experiences?

They did pay for the pack, then we will have to pay for it when we sell on. But this is a fairly minor caveat. As far as I know service charges haven't changed in 15 years and there is no stipulation that it has to. All owners are members of the company and the company currently employs an agent doing most things (other than council meetings), so it does look like that owners are in control. It would be good to speak to someone local about it, I guess we could just walk around/knock on doors and try our best.

My real worry is about what the posters above you are saying that they wouldn't touch it with a pole. Would it be really difficult to sell on especially at a time when the market is down? The estate sells 1-2 houses every year and many over asking price so it can't be that bad...

I think it would be difficult to sell on, more so with a house than flat. At least with a flat, most people wouldnt be surprised that its leasehold and are willing to pay a service charge.

People looking to buy houses generally want a proper freehold, not tied to a management company, and not restricted by any covenants (another thing to watch out for).

I've recently sold a bungalow in a development that sounds similar. Annual charge of about £300 to cover gardening and maintenance of the communal parts, gardening, tarmac in front of garage blocks, maintenance of trees in the communal areas. All via a managing agent. Each property has shared in the limited company. Had the bungalow in the family for 20 years, never been a problem and it wasn't a problem when I sold it. So I wouldn't let it put me off and your solicitor should go through it with you as the sale progresses

Some private estates have this set-up, including some upmarket / highly desirable / expensive ones so don't rule it out without further investigation.

Get the management company terms of reference to see their exact responsibilities & organisation & ownership and accounts / minutes of meetings to see what they are doing in practice, the costs involved, whether there are disagreements, how the charges have changed over the years, etc. Do they have a sinking fund for major repairs? Grass cutting will be on-going and cheap, road resurfacing intermittent and expensive. You could ask the council why they haven't adopted the estate and if they will do so in future. Have a look around the estate - is it well-kept or untidy?

Some people would be put off from buying, but not everyone clearly otherwise the estate would be empty. And the house is freehold not leasehold, which is a big plus - I wouldn't buy a leasehold house but would buy one on a private estate if all seemed in order. And this house is large, in a very nice area, close to good schools & transport links and £100k cheaper than nearby properties of a similar size. So lots of positives.

It's also normal to be both excited and nervous before a house purchase as it's a major investment, doubly so as it's your first time.

I pulled out of a purchase with these fleecehold fees. I was not happy with uncapped management fees.

@eightlivesdown
This is what's making it difficult, we do like the place (we don't love it but also can't afford anything that we love ) and it would serve us very well for 5-6 years as long as we don't lose money. Just don't know how to convince myself that this isn't simply too risky.

Roads are adopted (paths and communal green areas are not). The argument over repairs is strange but I have access to minutes suggesting it's not a major issue, they were more concerned with discussing inappropriate parking and signage removal...

The roles of the management company seem reasonable. There's a sinking fund but it's only 50% of the yearly fee so not a lot if something major would happen. For the estate 50% of costs are for repairs/gardening while the rest is for the agents. I guess they could be removed but who's going to do that to save £60-70 yearly...

You can't know if you will lose money on this or any other property because no-one knows how the market will go from here. If there's a general cash, does it matter? You sell for less and buy for less when you move. The concern is if the particular house / estate performs worse than the market in general (whether prices are rising or falling).

The house is freehold and the roads are adopted, which is positive. The management company is only responsible for the upkeep of paths and communal green areas for £100 per year, part into a sinking fund (good). 50% fee to the agent is high, but the service fee is low so it may be OK. 150 houses x £100 service fee = £15,000, 50% (£7,500) to the agent. It's reasonable if they are doing a good job of keeping the estate tidy.

Of course it would be better if the council fully adopted the estate and some people would shy away from buying for this reason. But they haven't and the the fee is modest. If the management company are doing a good job, as the house ticks lots of boxes and you can't afford a house that ticks more, you should seriously consider it.

It will be interesting to hear other opinions.

If this is a 5-6 year house and you want to move on, I would buy a smaller house that was a safer bet for the time-being. Yes, there are no guarantees, but I think rising cost of living and higher interest rates may have an effect and what will sell in a hot market now may be harder to shift down the line. None of this would be such a deal if you were buying to stay for a long time. All the things you’re worried about might well put someone else off and I think it could cause you a headache, alongside the fact it is a townhouse with a non-standard layout.