Fast-rising service charges are damaging the market for leasehold flats particularly those witin developments that have add-ons such as a gym or concierge, a leading estate agency has claimed.

Put utility bills on top of these extra costs, and rising bills for maintenance and labour, means apartments within many developments are significantly more expensive to run compared to properties within other types of comparable property such as a flat within a converted freeholder house.

Hamptons says the average annual service charge for a flat during 2024 increased by 11% to £2,300 or £192 a month. This compares with 2023 when they increased by 4.3% and means that the average service charge in England is now above £2,000 and that half of all leaseholders are paying more in service charges than council tax.

Increasingly cautious

“While the cost of running a home has risen for pretty much every household over the last five years, some leaseholders have seen costs rise much more quickly,” says David Fell, its Lead Analyst.

“And with limited ways to find savings, the cost of running some facilities, which were affordable five or 10 years ago, could now be breaking the bank.

“Both buyers and mortgage lenders have become increasingly cautious about committing to high service charge costs, particularly where they perceive charges to be disproportionate to the amenities they get in return.

“Consequently, there is mounting pressure for leaseholders to have a greater say in how their money is spent.”

The Government agrees, with Housing Minister Matthew Pennycook, announcing Labour’s intention to effectively abolish leasehold, saying: “For far too many leaseholders, the reality of home ownership has fallen woefully short of the dream – their lives marked by an intermittent, if not constant, struggle with punitive and escalating ground rents; unjustified permissions and administration fees; unreasonable or extortionate charges; and onerous conditions imposed with little or no consultation.

“This is not what home ownership should entail”.

Inflation busting

Also, service charges increases are far outstripping inflation. During 2024 they rose four times faster than the Consumer Price Index and increased by 34% during the past five years compared to inflation at 23%.
Having a gym on site costs on average attracts a service charge that’s £561 a year higher than developments without one. Lifts cost leaseholders £364 more and those with a concierge £892.

The higher number of large city centre schemes which offer this kind of service across the Midlands and North of England has created a growing North-South divide.

In recent years, service charges have risen much faster in the North of England than in the South.
For example, the North East has seen average service charges rise 60.9% over the last five years.

Fell adds: “Would-be sellers paying high charges have often seen the value of their homes rise more slowly or even fall.

“In some cases, sellers are offering potential buyers a cash contribution towards future service charge payments.”

Last year Hamptons revealed that that higher ownership costs, negative equity as well as ongoing cladding and remediation issues, have depressed sales and that the number sold over the past three years was between 25% and 33% lower than expected.