Editor's note: This brief was summarised by The Property AI Newsroom from a report by PropertyWire. Read the original article for full details.

Mortgage Lenders Tighten Service Charge Criteria for Flats

Banks are increasingly rejecting mortgage applications for flats where annual service charges exceed 1% of the property’s value, according to industry experts. This marks a tightening of lending criteria, down from a previous benchmark of 2%, as lenders express concern about the resale value of repossessed properties with high ongoing costs.

Mark Harris, chief executive of mortgage broker SPF Private Clients, stated that while the threshold varies between lenders, the 1% figure is now a common rule of thumb. Lenders may decide not to lend if service charges breach this proportion of the property’s value. Harris also noted that lenders consider review periods and ground rent when assessing applications, though recent legislative changes may reduce the impact of ground rent.

Rising service charges are having a noticeable effect on the market. Data from Hamptons shows that 37% of flats carried a service charge above 1% of value in 2025, up from 28% a decade earlier. This trend raises concerns about mortgage accessibility for flat buyers, especially those seeking high loan-to-value mortgages.

Research published by Propertymark found that 86% of leaseholders experienced service charge increases in the past 24 months. Of those, 62% reported increases exceeding 21%, and more than a quarter saw rises above 60%.

Katie Kendrick OBE, founder of the National Leasehold Campaign, commented on the ongoing challenges faced by leaseholders, highlighting issues with affordability and the ability to sell or move.

The government announced this week that new measures to protect leaseholders would come into force “as soon as possible from 2027”, though no specific details were provided. The tightening of mortgage criteria adds another layer of complexity for property buyers, particularly those considering flat purchases.

Mark Harris advised borrowers to seek professional guidance if service charges appear excessive, especially when applying for higher loan-to-value mortgages. The issue may affect property values and marketability, with potential implications for both the rental and sales markets in areas with high concentrations of leasehold flats.