Flats Face Mortgage Hurdles as Service Charges Rise
It’s a challenging time for many flat owners, as rising service charges are increasingly impacting property market viability. New reports highlight a growing hurdle: lenders are tightening criteria, making some flats difficult to mortgage.
Here’s a look at the current situation:
- Lender ‘Red Line’: Several major banks are now reportedly refusing to lend on flats where the annual service charge exceeds 1% of the property’s value, a significant shift from a previous 2% threshold. This is driven by concerns that high charges could make repossessed properties harder to sell, as detailed in The Neg.
- Affordability Concerns: Lenders are wary of unknown future costs and how increased service charges might affect a borrower’s long-term affordability. Mark Harris from SPF Private Clients notes that this 1% rule is becoming a standard guide, with review periods and ground rent also factoring into decisions, according to The Neg.
- Impact on Leaseholders: Data underscores the scale of the problem. The Neg reports that 37% of flats in 2025 carried a service charge above 1% of their value, up from 28% a decade ago. Furthermore, Propertymark research mentioned by The Neg reveals 86% of leaseholders have seen service charge increases in the last two years, with many experiencing hikes over 21%, and a quarter facing rises exceeding 60%.
- Government & Campaigner View: While the Government has announced new measures to protect leaseholders, expected from 2027, campaigners like Katie Kendrick OBE from the National Leasehold Campaign highlight the ongoing plight, stating “Leasehold remains a life sentence,” with many leaseholders feeling trapped by unaffordable costs and inability to sell, as reported by The Neg.
Outlook
This tightening of lending criteria due to escalating service charges is a serious challenge for the flat market. Prospective buyers and current leaseholders need to be fully aware of these thresholds and factor potential increases into their long-term financial planning. While government reforms are on the horizon, the immediate impact on market fluidity and affordability is clear.
