There is so much I wish I knew about owning a flat before I purchased my first flat. Learning lessons from mistakes is sometimes one of the only ways to really learn, but I wish I had researched more about the costs of owning a flat as I have been stumped with so many additional fees along the way that I knew nothing about.
Buying a property of your own for the first time, or one to be used as an investment is one that is incredibly exciting but needs to be carefully considered. There are many additional costs that come with owning a flat due to it being a leasehold property, as well as further fees that need to be budgeted for. This will help you to work out whether it will be more feasible than a house or b) whether it will pay for itself as an investment whether being used as a rental of holiday accomodation.
From my personal experience of owning a flat, here are the costs you can expect when owning a flat (the costs themselves will differ based on a number of varying factors).
What Costs Are Involved In Owning A Flat?
If you’ve taken out a mortgage, you’ll have those monthly repayments for your flat. No surprise here. In advance of buying the flat you will have already assessed your mortgage affordability and worked out what you can afford, based on your income. This is one of your constant repayments for your flat where you’ll always know where you stand.
This is another monthly payment that you will incur as a flat owner. You can check what council tax band your property will be in before you move. The cost of council tax can vary on a number of factors including number of rooms, location and period of property. Generally speaking, flats are cheaper on the council tax band, you can also apply for a single personal discount if you live alone.
The main difference between owning a flat and a house is that you are not responsible for taking out building insurance (this will come under your service charge). Don’t see contents insurance as that insurance you get asked to take out for your mobile and never take. It’s hopefully the one thing you’ll always pay for and never use but it’s just not worth the risk not having it. Use Compare the Meerkat to find the best deal, I never paid more than £10 a month for my contents, but it does vary on the amount of goods you have at your home and want to protect.
Other Insurance Policies
There are other optional insurance policies that you can take out to protect yourself, and the monthly payments of your property if anything was to happen to you. Your mortgage adviser will be able to recommend policies they think appropriate but some are; critical illness cover. If you become critically ill then your monthly income to a certain amount will be protected and you will receive every month so you don’t have the financial pressure to keep working when you are ill. Life insurance cover is a popular choice which is a policy which pays out the mortgage in the eventuality that you die. Sorry, there’s no beating round the bush with this one. There used to be such a thing as unemployment cover too which deceased when COVID arrived. This was a great policy, it would pay out to a certain amount each month to cover your income if you were made redundant, some polices would also provide you with help to get you back into employment as soon as possible too.
A flat is a leasehold property which means the entire property is essentially still owned by a landlord, despite the flat being yours. As part of your lease you will pay annual ground rent which is set out in the terms of the lease. The industry average is £50 a year which is really minimal, but this can vary and should be investigated before purchasing your property. My ground rent is £250 for the year which is actually considered astronomical for ground rent. If you are looking to air bnb your property and need a holiday let mortgage, some lenders will simply not lend to you if your ground rent is too expensive. I know this because it was a route I considered and they would not give me a holiday let mortgage for this reason. Ground rent can be increased but it can only be increased by the terms in the lease and this is usually over a 5 or 10 year period that it can be adjusted.
The second aspect to a leasehold property is that you will incur service charges for owning a flat. This is the biggest additional expense that comes with owning a flat and can vary hugely depending on the setup of the lease and the managing agent. Flats that have a specific managing agent will usually charge a lot more. Again, this should be investigated when looking to buy a flat and will be fully detailed in the lease. I have paid between £500-£1000 a year for my service charges. The service charge you pay for usually includes, but is not limited to;
- Cleaning of communal areas
- Building insurance (split between amount of flats)
- Fire risk assesment
- Health & safety risk assesment
- General repairs & maintenance
- Door entry software/lifts
- Agent fees
- Communal electricity
- Sinking fund (this is a fund that builds up and is carried over if not used, this fund goes towards areas that can’t be accounted for such as a sudden drains problem, leaky roof etc)
You still have the usual utility bills when it comes to owning a flat. It’s best to check that both electric/gas and water is individually metred as you don’t want to be paying for anyone else’s usage. Sometimes the electric and water bills are managed by the managing agent and invoiced to you from them. In my experience, the electric is something I pay on a monthly basis and organise myself, whereas the water bill is sent complete to the managing agent who then divides it by each flats individual usage which is then billed to us. I find this annoying as they do it every 3 months, whereas it’s much easier to know where you stand on a monthly basis. This will not be the case with every flat though.
Some properties might require you to have a parking permit to park on the adjacent roads. The estate agent should know this when you visit the property. Do check beforehand the cost you might incur and to confirm that the property is not exempt from a parking permit. It usually doesn’t cost more than £50-£100 per year, but this can vary depending on your location.
Upkeep & Maintenance
Whilst the exterior is managed through your service charge, the interior and everything in between is at your cost. From time to time things will go wrong and it’s not something you can necessarily budget for so it’s best to have a reserve fund that you can sink into if something does need to be repaired.
This might seem a bit backwards, but it’s something I WISH I knew about when it came to selling my flat. To sell your flat you legally need to provide the purchasers solicitors with an LPE1 form which is a management pack essentially outlining all costs to do with the service charge and how they manage the property. This is not something you can do yourself, unless of course you are also the acting managing agent. This can cost anywhere between £200-£800 to be conducted depending on who you are dealing with. This is a cost that you don’t experience when selling a house (freehold property) so it’s important to also take this into consideration.
It’s important to consider all of these costs of owning a flat before signing on the dotted line. My top advice is to research and get all of these figures in advance so you can work out affordability and any hidden costs that you might incur in owning a flat. If you’re currently looking to purchase a flat, you should also check out my post on 9 Things To Check Before Buying A Flat.