Sub £1,000 service charges approach extinction

Service charges - much like all household expenses - have been on the rise over the past 18 months.

Published under Market updateMortgages & finance and Research — Apr 2024
Sub £1,000 service charges approach extinction

Service charges have long been a consideration for flat owners. However, high inflation of goods and services has pushed up service charge costs for leaseholders across England & Wales and brought the topic to the foreground.

The latest figures from the Hamptons Annual Service Charge Index show that the average annual service charge for flats in England and Wales has risen by 8.4% between Q1 2023 and Q1 2024, reaching an average of £2,247. This increase is more than twice the rate of inflation and represents the sharpest growth since our records began in 2016.

Service charges, which are typically based on estimated costs, are now reflecting the inflation that has been running hot for much of the last 18 months. This has resulted in today's higher bills, which are significantly impacting the affordability of flats, adding further pressure to leaseholder incomes.

The scarcity of flats with service charges below £1,000 is becoming more pronounced. As of Q1 2024, only 19% of flats across the country boasted such low charges, a figure that has dwindled from 33% in 2016. In London, the situation is even more acute, with a mere 14% of flats falling into this category, indicating that sub £1,000 service charges could soon be a thing of the past. Based on their current trajectory, we estimate that there are unlikely to be any flats offering a sub £1,000 per year service charge within a decade.

While there are regional disparities, generally these occur because service charges are predominantly dictated by the size and number of amenities within a block. Half of the regions in England and Wales this year are now reporting average service charges above £2,000 per year. This is a significant shift from five years prior when no region had averages at this level.

The average annual service charge in the capital is now £2,581 which represents an increase of 9.0% over the last 12 months. Service charges in London are higher than anywhere else in the country, reflecting the higher cost of living in the capital and the fact that larger more complex city buildings tend to come with higher running costs over their lifetime.

Additionally, the first generation of city centre flats are now thirty years old and are starting to show their age, often approaching the point when they need an injection of cash. This need for refurbishment and maintenance is contributing to the upward pressure on service charges.

The service charge for a one-bed flat in England and Wales averaged £1,940 at the end of Q1 2024, with 75% of leaseholders paying more than £1,000 per annum. Meanwhile, the average service charge for a two-bed was £2,311 with 84% paying more than £1,000 a year.

First-time buyers are increasingly bearing the brunt of these rising costs. They now account for a record 36% of flat purchases, surpassing landlords as the primary buyers of flats since 2015. Consequently, a rising share of new buyers are paying service charges on top of their mortgage, which can reduce the amount they are able to borrow and affect their entry onto the housing ladder.

With buyers going through service charge accounts with an increasingly fine tooth comb, they’re more informed than ever about how much they’ll be paying each month and what they’re getting back. This means the value of flats where the service charge is disproportionate to the services on offer has come under downward pressure.

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Aneisha Beveridge

Head of Research

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