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Hidden service charges for newly-built apartments

Service charges faced by buyers of newly-built properties are a “hidden cost” reaching an average of £2,777, a survey suggests.

A survey says that buyers of apartments coming onto the market this year are paying significantly more in service charges than those buying older properties.

Insurer Direct Line for Business suggested a third of management companies increased fees in the last two years.

Luxury additions such as gyms and cinema rooms are adding to servicing costs.

A service charge or fee, which tends to vary from year to year, is paid by the leaseholder to cover maintenance of the building. Owners who rent their homes may pass on these costs to other tenants.

The survey suggests that leaseholders of newly-built properties are paying a lot more in these charges than the general average of £1,863.

Some of the worst charges are found in new apartment blocks lining the River Thames in London, where residents will have to pay nearly £7,000 a year on a two-bed flat.

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.”

The service charge and ground rent together mean that a 40% taxpayer purchasing the average flat has to earn £5,200 a year just to maintain the property. The mortgage, council tax and insurances all come on top.

The research also suggested that some developers are requiring freeholders to pay fees for the upkeep of private roads or communal gardens in private estates.

Direct Line said: “One new-build development coming on to the market in Croydon in 2016 will see homeowners paying £1.55 per square foot in service charges, while a development in Lambeth coming on to the market in 2017 is charging four and a half times more, at £7 per square foot”.

Legal firm, Slater and Gordan also conducted a survey which said that one in five tenants said they never expected to see their deposit cheque again after handing it over when renting a home.