Published: 24/09/2018
Sitting on the train home last night reading the property section of The Evening Standard I was astounded at the amount of properties available on shared ownership and help to buy. I wanted to buy one, they looked awesome!I could see myself walking with my coffee along the Thames with the sun out, Big Ben in the background and my wife smiling and laughing away at my jokes beside me (definitely a CGI image!). While I really like the idea of the schemes, I wonder what nightmares are to come for the buyers. I am not going to tar all the developments with the same brush, not at all. All I say is be very careful and make sure if you are buying a flat you due your proper due diligence.
A 25% share at £150,000 of a 1 bedroom flat in a lovely part of London sounds great. However, is that flat really worth £600,000? What is the price per square foot in the area and what is the flat being bought at on a sq ft basis ? What is a difference, what really is the justification? Is it the new home smell, the glossy brochure, the funky pillows, the bowl of lemons on the counter, the cool CGI café and cake shop underneath?
If you had to sell tomorrow what would a local agent value the property at now, as a re-sale home?
We manage a lot of blocks in London and service charges leaseholders pay differs hugely. Look at the potential service charges very carefully. A friend of mine bought a new build off plan from a well known developer in West London and the first three years the service charges were not that bad, however after year 3, whammo a huge rise!!
When the true costs of the services start to come through the accounts after year 2 and 3 the freeholder has no option but to raise the service charges. Whether this is by design or not is another story. Then all the property owners are left with a much larger service charge bill than they had anticipated. Can that now be afforded?
So, if it was me, I would look at the services provided. These cost money, and someone has to pay for them, and that is the property owner. Gyms, lifts, video entryphone systems, communal gardens, concierge, communal boilers. A lot of these may add to the value of the unit, but do these costs really add a lot to the value of the property?
When the property is put back on the market for resale in a few years time, will applicants be turned off at the level of the service charges and not want to buy the flat?
Some things to think about:
Could you look at buying in a different area where it is cheaper and you own 100% of it?
Could you look to buy with a friend or a family member (if you do, make sure you seek legal advice)?
Is it worth looking at properties without a lift and communal boiler or even the bowl of lemons on the counter?
There are a lot more properties on the market that are not shared ownership that could represent better value.
It is all a balance, but just be careful.
William Taper
Director
Head of Residential Property Sales, Lettings & Management