On the surface, buying a new build home is a no-brainer. They are freshly built, low maintenance and include the latest efficiency features.
They should cost less to heat and come with all the modern conveniences you could need.
If you ignore the inevitable snagging meetings and waiting for the developer to fix issues, it’s a very positive experience.
Buying a freehold means owning your own property on your own land. Your own little piece of Britain.
But they also come with a hidden time bomb.
Estate charges.
Management fees, also known as estate charges, are a relatively new idea that developers are using to make even more profit from us.
As I was very interested in buying a new build recently, this is something I have some experience in.
If you’re thinking of buying a new build home, you really need to know about estate charges and what they could mean for you.
The fact they are known as ‘fleeceholds’ should tell you all you need to know, but there’s more.
What are new build estate charges?
New build estate charges are now being included in most new build purchases.
You won’t find estate charges mentioned very prominently on property descriptions and estate agents and sales teams don’t like talking about them, but they are there.
They are an extra annual charge to be paid by the homeowner for upkeep of common areas on the estate.
Charges are typically around £100 to £200 per year. Much depends on the size and value of your home.
They are to help a management company pay for landscaping, maintenance and other aspects of maintaining your development.
As the council may not have adopted the estate, the cost of all those things falls to the developer. Which they pass on to you.
So far, so fair right?
Wrong.
Most developers will use a management company to handle all that. They will bill you once a year and use the most to pay for upkeep.
Trouble is, that management company doesn’t answer to you but to the landowner, usually the development company.
You have no power in this arrangement.
None. Zero. Unless the management company is run by residents, which isn’t many.
The management company can raise fees as much as they like and nobody can say anything against it.
- They don’t have to justify why they raise prices
- They don’t have to show you how and where they spend it
- They don’t have to show you their accounts
- There’s no mechanism to challenge fees
- There is no arbitration or accessible legal recourse
- There are fewer rights for freeholders than there are for leaseholders
- They aren’t regulated or controlled in any way
- They have the same power over your property title as your mortgage company
Worst of all, the management company can take your house from you if you don’t pay it.
Sure that’s a last resort, but they have that power.
- Management fees are attached to your property deeds and have final power over them.
- If you don’t pay, the management company can transfer your freehold into a leasehold.
- You must consult the management company of you want to rent your property out.
- You also have to get paperwork from the management company in the event you sell your property. For a fee.
- You also must pay this fee on top of full council tax even though the council isn’t paying for the upkeep of the estate!
You see why you need to know this stuff right?
That’s doubly true when it seems not all conveyancers highlight these issues to buyers.
Does any of that seem fair to you? Does any of this arrangement look like it’s in the buyer’s favour or provide any benefit whatsoever to the homeowner?
The background of new build management fees
The background of new build management fees comes down to planning, councils and Section 106 agreements.
Cash-strapped councils initially didn’t want to pay for new schools, roads and other infrastructure needed by new build estates. They were also concerned at the impact these estates would have on the area.
Eventually, councils cottoned on to Section 106 agreements as a way to make extra money by making developers pay for essential services.
By setting up their own management companies, developers could reduce the Section 106 agreement fees and make more money from property owners.
Some developers allow homeowners to be on the board of the management company and help influence its direction.
It will still have first charge (or second if you have a mortgage) on your property though.
You’ll still need its consent if you want to sell your home.
If you were still on the fence as to whether estate charges were in the buyer’s interest or not, consider that councils aren’t often actually asked to adopt new build estates anymore.
There’s so much money in estate charges, developers and management companies don’t want to let go of their cash cow!
Management fees for new build homes
As you can see, the entire system of management fees or estate charges is stacked against the homeowner.
From researching the subject, it seems conveyancers aren’t always highlighting estate charges to prospective buyers either.
In the cold light of day, it’s unlikely a management company would prevent you selling or renting out your house.
It is also unlikely that the company would drastically increase annual fees without good reason.
But you don’t control any of that.
The whole point of buying a freehold is to have some control over your own future. To have your safe place where nobody can interfere with your life as long as you make your mortgage payments.
Estate charges take all that power and freedom away from you.
They hold as much power of the title of your house as your mortgage company and that isn’t right.
The government is planning to address estate management fees ‘as soon as parliamentary time allows’ but there’s no timetable for it.
Given how chaotic government is right now, there’s no telling how long that will take.
What does this mean for anyone buying a new home?
You are free to make up your own mind and buy whatever property you like, wherever you like.
However, I would strongly counsel against buying a new build home right now. At least until parliament provides some control over estate charges or regulates the industry.
The management company has too much power and the homeowner has too little.
You are still expected to pay a new build premium for your home, yet don’t have full title to it.
You’re buying a freehold property, but don’t have full control over that freehold.
You have even less power over your surroundings as a leaseholder does and yet you’re supposed to own the land!
That’s just wrong on every conceivable level.
