02 Buy

Dangers When Buying a New Flat

  • Buying a new flat doesn’t necessarily mean trouble-free
  • A leasehold title has several drawbacks

Are you looking to buy a new flat but not sure whether it is the best thing to do?

There always seems to  be a lot of negative news or narrative about new apartments; matters such as:

  • Unfair ground rents
  • Poor management
  • High management charges
  • Lack of security
  • Neighbour issues
  • Poor value for money. 

It makes you wonder why anyone ever buys a new flat.

But thankfully there are steps you can take to provide yourself with a level of protection when buying new.   

Here are 8 simple things you can do to ensure that your dream new apartment does not end up becoming a nightmare:

1. Don’t skimp on due diligence before buying

2. Read the lease and ask questions about it

3. Realise you’re buying a leasehold title not a freehold

4. Check the ground rent provisions carefully

5. Find out all you can about the management of the block

6. Discover as much as you can about your future neighbours

7. Take on board the fact that new flats normally sell at a premium price

8. Realise that your flat’s value will fall as the lease shortens.     

1. Don’t skimp on due diligence before buying

The first thing to do is to carry out as much due diligence as you can in respect of the developer, the neighbourhood, the block and the inhabitants.

Go online to see what others have said about the developer; do they have a good reputation? Have there been issues with other developments they have built? Are their reviews good or bad?

Check if there is anything being said about the development or block online.

Don’t forget the fundamental stuff like local transport and amenities. Use streetcheck.co.uk to assess crime, policing and other matters.

Remember that you are not just buying a new property, you are buying in a specific area or locality with its own characteristics. Your property may be shiny and new, but it could be in a neighbourhood which is “on the up” but definitely not there yet. 

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2. Read the lease and ask questions about it

When you buy a flat, the lease effectively sets out your rights, obligations and duties.

You need to know these and the best way to do so is to  read the lease carefully – asking your conveyancer to explain anything you do not fully understand.

Note in particular your “covenants” or obligations and check out the “regulations”, which could restrict you in terms of a wide range of things such as:

  • Taking in lodgers
  • Letting out the property
  • Changing the interior layout
  • Keeping pets
  • Playing music or musical instruments at certain times of the day.

If you breach a covenant or regulation you could be sued; therefore it is crucial to be fully aware of the covenants, regulations and similar obligations which apply to you.     

3. Realise you’re buying a leasehold title not a freehold

Many buyers completely miss the reality that there is a world of difference between a freehold title (which you normally get when you buy a house) and a leasehold title (which you normally get when you buy a flat).

With freehold, you and your heirs and successors can use and enjoy the property forever.

With leasehold, your use and enjoyment of the property is limited to the duration of the lease – often 99 or 125 years, although leases can be as long as 999 years. 

Further, the lease will typically impose many limitations or restrictions on what you can or cannot do in relation to the flat, notably:

  • Insuring it
  • Changing its physical layout
  • Assigning or subletting the whole or part of it 
  • Keeping it in good repair and decorative condition
  • Applying for planning permission or building regulations.

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4. Check the ground rent provisions carefully

Because of the rise of greedy, profiteering or unscrupulous developers, it is especially important to scrutinise the ground rent provisions.

Leaseholders, who unlike a freeholder don’t own the land on which their building is built, usually have to pay a “ground rent” to the freeholder.

Historically this was a modest sum, often fixed for the entire duration of the lease.

However, in recent times, developers have created crafty ground rent provisions which can lead to huge future ground rents – which in extreme cases could make the property unsaleable or worth relatively little. 

Watch out in particular for provisions which allow a doubling of the ground rent at fairly short intervals, such as every 10 or 15 years.

Provisions for ground rent to increase in line with inflation at periodic intervals can also lead to rampant ground rents.

Ideally, you should only accept ground rents which are fixed for the entire length of the lease (uncommon) or where the periodic increase is modest, reasonable and proportionate.

5. Find out all you can about the management of the block

It’s vital to know as much as possible about the building or block in which your flat is situated.

The internal communal parts and external areas such as gardens, parking and play areas will be the responsibility of the management company or agent. You and the other leaseholders will pay for such management by way of service or maintenance charges.

The building insurance, but not insurance for your contents, will normally be included in the service charges.

With a new building, service charges should be relatively modest in the first few years. Make sure you are given an estimate of the likely level of charges on a square foot basis.

You can then multiply that figure by the total square footage of your apartment to calculate your likely bill.

Once you know the name of the management company, go online to find out all you can about them. Be concerned if there are negative stories about them –  such as poor service or poor value for money. Have there been any disputes or court proceedings against them?

Have they received good or lousy reviews?

If your flat comes with loads of desirable services or facilities such as concierge, gym, sauna, restaurant, bar, cinema and the like, remember that you will be charged for them – and things can and will regularly breakdown.

If you are going to live at the flat, will you actually use the services enough to justify the likely cost?

If it is an apartment you plan to let out, will you  be able to recover sufficient rent to pay for the services – or will they simply eat into your rental income?

Consider with care whether you want to buy on a huge development with several buildings being managed together. If there are many buildings, you will find that there is always one of them requiring major works at any one time.

The outcome is that you rarely get a year when the management company does not want a chunky service charge payment, either as a reserve or to carry out works.

If your block is low rise and does not have lifts, that can be a major advantage in terms of your outgoings on service charges; lifts can be unreliable and are very expensive to replace.

Be aware that low initial charges can rapidly escalate once the building or block ages. It is not unusual for service charges to double or more over a few years. The more services or facilities you have, the more likely you are to face ever-escalating service charges. 

Buy into a small block with few facilities if you wish to minimise the risk of high service charges. 

Security is often an issue in blocks – mail, bikes and cars can be at risk of being stolen. Are mail boxes robust and protected by cameras? Are car/bike parking areas inaccessible to the public and well served by cameras? Having a full time concierge can of course  significantly improve security. 

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6. Find out as much as you can about your future neighbours

Issues around neighbours is one of the downsides of living in a flat, with noise and anti-social behaviour being common complaints.

Make enquiries as to the type of occupants that are likely to occupy the development and, in particular, your block. Are all the units for private buyers or will there be an element of “affordable housing”?

Is the block likely to be occupied mainly by owner occupiers or tenants?

There is no guarantee of course, but living in a block only or largely made up of owner occupiers may prove more issue-free than living in a block with a high tenant population. 

7. Take on board that new flats normally sell at a premium price

If you buy a new flat you will normally be paying a premium price, perhaps as much as 25% more than an equivalent second-hand flat nearby.

In many cases, nearby second-hand flats are better value for money.

If your new build flat is in a huge block with lots of similar apartments, that could depress its value on a sale. 

It is a fact that some new flats are over-priced, the value having been inflated by a combination of demand and “smart” marketing. You are entitled to expect that your surveyor will spot that and push back on the valuation – but that is not always the case.

If you are unlucky, you could find that several years after your purchase your new flat is worth less than you paid for it, even though house prices in your locality have increased.

Where that happens, and you have concerns, take legal advice to see if you have any remedy against your surveyor.

You can hedge against a valuation-fall by favouring flats in small or compact blocks, in good locations, with outside space and benefitting from high quality or unique interior layout, design or finishing. 

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Beware of developers bearing gifts (why not all incentives are a giveaway)

8. Realise that your flat’s value will fall as the lease shortens

Remember that a lease is a depreciating property asset; the value of the flat falls as the lease gets shorter and you and your heirs and successors have less time to live at the property.

When a lease gets below 80 years, that is important as it gets markedly more expensive for you if you want to extend the lease – say back up to 99 years or beyond.

If you buy a new flat with a  25 or 30 year mortgage, it makes sense to avoid new leases of 99 years since your lease will have less than 80 years to run before you pay off the mortgage.

It therefore makes sense for you to go for new flats where the lease is at least 125 years in length.

If you do have a lease which is approaching the 80 years point, it is desirable to negotiate a lease extension two or three years before it dips below 80 years.

If the freeholder refuses an extension, you will have enough time to apply for an extension via the statutory route before the 80 years threshold is breached. 

The statutory route gives you a legal right to a 90 year extension of your lease and extinguishment of the ground rent.

Conclusion

New flats can be extremely attractive and enticing. They are typically fresh, clean and shiny. 

You may love the idea of being the first ever occupier and be wowed by the reality of being able to move in without having to do any work, and surrounded by spanking new decorations and brand new appliances and fittings.

However you should not overlook the downsides of a new apartment; there are many of them and, if missed or downplayed, they could end up costing you tens of thousands of pounds.

With a new flat, “all that glitters is not gold”.

When buying a new flat, be sure to exercise more due diligence and caution than you would when buying a second hand flat.

Enjoyed this blog? Please share it with friends by clicking on the LinkedIn, Twitter, Facebook or Instagram icon on this page. 

Have you ever bought a new flat? If so, has it been a good or bad purchase?

You may also find the following blogs useful:

Mistakes when buying a lease (must do things to protect your position)
Buying a UK property (must know steps when buying in the UK)
Buying a property abroad (the issues, risks and dangers to be aware of)
How to buy a property in London (a short guide especially for non UK residents)

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Dalton Barrett
Rebel Property Coach

Please follow me on Twitter @Dalton1London
You can find me on FacebookInstagram and on YouTube
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My website is: www.rebelpropertycoach.com

 


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4 replies »

  1. Ground rents are certainly something to look out for. I remember reading somewhere that the government were considering capping them at £10 on new leases. Any idea what became of this?

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