Property service charges for new-builds now average £2,777, a whopping 96% higher than the average for an older property, new research shows.
According to Direct Line for Business, property service charges are soaring, with a third of management companies increasing these fees in the last two years.
The average annual property service charge in Britain is £1,863 and £2,777 for new-builds.
Direct Line also pointed out that ground rent fees are now on average £371 a year for a new-build and £327 for older properties.
The research showed that service charges vary wildly depending on location. One new-build development coming onto the market in Croydon in 2016 will see homeowners paying £1.55 per square foot in service charges, compared to a development in Lambeth which is charging £7 a square foot when it comes onto the market in 2017.
There is also 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.
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, said: “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.”
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.
Now I know why companies are so keen to market cut-price developments with crazy returns, when much of that return will end up in the hands of the management company that sold it in the first place and then they can find the next development block and repeat the process!