Editor's note: This brief was summarised by The Property AI Newsroom from a report by The Negotiator. Read the original article for full details.
Lenders Set 1% Service Charge Limit for Flats
Several banks are now refusing to offer mortgages on flats where the annual service charge exceeds 1% of the property’s value, according to a report by The Negotiator. This threshold has been reduced from a previous 2%, with lenders concerned that high service charges could make repossessed flats more difficult to sell.
Mark Harris, chief executive of mortgage broker SPF Private Clients, told The Negotiator that while the exact threshold varies between lenders, the 1% figure is now a common rule of thumb. Lenders are also considering factors such as review periods and ground rent, though upcoming legislative changes may affect the latter.
The report highlights that lenders are particularly wary of unknown future costs and the impact of further increases in service charges on affordability. Borrowers are advised to seek professional advice if service charges appear excessive, especially when seeking high loan-to-value mortgages.
Impact on Leaseholders and the Rental Market
The government has announced new measures to protect leaseholders, with implementation planned “as soon as possible from 2027.” However, leaseholders continue to face rising service charges. Data from Hamptons shows that 37% of flats are expected to have service charges above 1% of their value in 2025, up from 28% a decade ago.
Research by Propertymark found that 86% of leaseholders experienced an increase in service charges over the past 24 months. Of those, 62% reported increases of more than 21%, and over a quarter saw rises of more than 60%.
These developments are particularly relevant for letting agents and inventory clerks, as rising service charges and tighter lending criteria may affect the marketability and management of leasehold flats.
Source: The Negotiator