Someone buying a flat in Britain currently faces the prospect of paying £2,845 on service charge per year, analysis of current sale listings has revealed.
That comes on top of paying council tax, mortgage repayments, energy bills and in many cases ground rent to a freeholder.
But in extreme cases, service charges have become the largest annual cost for flat owners – and they tend to rise over time with costs varying greatly depending on the type, size and location of the property.
The annual charge covers things like cleaning in communal areas, repairs, safety checks, buildings insurance, on-site staff costs and the managing agents fees. For some apartments, it can also include things like a gym, concierge and a communal garden.
Nervousness about high service charges is now putting off some buyers, according to estate agent JLL.
In a report last week, it revealed that average service charges on new developments in London have risen by an average of 43 per cent for ‘low to moderate amenity’ blocks and a whopping 89 per cent for ‘high amenity’ blocks in the last five years alone.
Expensive: The average service charges in London has reached almost £4,000 a year – and in central London it’s typically much higher
And brokers are now warning they are seeing an increase in mortgage applications failing purely due to spiralling service charges.
Now, with the help of analytics firm PropertyData, which has analysed Rightmove listings across the country, we can reveal typical service charge bills nationwide and where buyers face paying the most.
Where service charges are highest across the UK
Unsurprisingly, someone buying a flat in Greater London will pay the highest service charge bill on average.
The typical flat on the market in London currently charges a service charge of £3,919 on top of an asking price of £649,299.
But while the capital is notorious for having the highest service charges, the costs in other regions look more brutal when looking at it in proportion to the asking price.
In the East Midlands, for example, the average flat on the market has a service charge of £1,853 per year against an average asking price of £150,465.
That means a buyer will be paying the equivalent of 1.43 per cent of the purchase price in service charge alone.
Outside of London, flats currently listed for sale in the North East have the highest service charges on average with annual bills of £2,234, according to PropertyData’s analysis.
Central London is where annual service charges really skyrocket. The norm is often over £5,000 and in some cases can reach above £100,000.
In nine of London’s most expensive postcodes average service charges are above £10,000 per annum.
For example, in W1J in Mayfair, the average is £16,594. In WC2R, around the Strand it’s £15,191 and in SW1X, spanning parts of Belgravia and Knightbridge, it’s £12,360 a year.
Examples of high service charges are everywhere you look in the capital on Rightmove or Zoopla – but purpose built apartments tend to have the highest service charges.
One twelfth floor five bedroom penthouse near Paddington Station covering just over 4,000 square feet has a service charge of £57,103 a year.
The property, which has an asking price of £6m, is situated in a gated development and comes with two underground car parking spaces, a gym and a swimming pool.
Another five bedroom flat with share of freehold in Victoria, which is on the market for £3.2m comes with a £19,691 annual service charge. The flat, which is located within a Victorian mansion block, comes with a porter.
What about for houses?
Some houses whether freehold or leasehold also can come with service charges or estate management charges, also known as estate rent charges.
They have become an increasingly common feature of new build estates. The charge is bound to each property through the title deeds.
Owners of at least a million newly-built homes face paying these estate charges, according to the Homeowners Alliance, often with no way to challenge them or to take over the management themselves.
Sometimes the charge may seem reasonable. However, often it can seem like people are paying money for almost nothing.
The charges tend to cover any communal gardens or lawns, private roads, pavements, car parks and play areas located within the new housing estate.
In the past, the local authority might have provided these services – but when new housing estates are built, councils don’t have to take responsibility for them. This means the residents must fund it themselves.
The analysis found that the average house that comes with these types of charges pay £1,069 a year. In Greater London that rises to £2,451 a year.
Across the rest of the country, these charges tend to average under £1,000. However, based on current listings, in Wales the average buyer could face a £1,288 annual charge on average and in the South West, it’s currently £1,139.
Where service charges exceed 1% of property’s value
The analysis found that many areas have flats where the service charges are exceeding 1 per cent of the property’s value.
For example, in the BD1 postcode in Bradford city centre service charges currently average £2,023, according to PropertyData.
The average asking price for these properties is £68,050. That means the typical service charge equates to 3.13 per cent of the asking price.
The same can be seen in L2, in Liverpool’s city centre. Service charges there are averaging £2,910 per year when the average asking price is £122,374. That means the service charge is 2.58 per cent of the asking price.
Service charges exceeding 1 per cent of a property’s value is a critical threshold in the current market with certain lenders.
Some banks may become unwilling to lend above this figure if a mortgage valuation states that a high service charge could have an impact on how easily a lender can sell the property were the property to be repossessed.
In most cases the property value would be referred to the valuer.
Some lenders have explicit, hard caps written into their lending criteria,’ says Will Coe, a mortgage consultant at Cleerly.
‘For example, Gen H states that annual service charges must not exceed 1 per cent of the property’s purchase price or valuation, while others like MPowered Mortgages cap the combined service charge and ground rent at 1.5 per cent.
‘When a flat’s service charge approaches or hits that 1 per cent mark, many mainstream lenders will indeed defer to the surveyor. They are effectively asking the valuer: If the surveyor decides the fee is ‘onerous’ or completely out of step with the local market, the property is flagged as unsuitable security, and the mortgage is declined flat out.’
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Coe says his company has seen an increase in mortgage applications failing purely due to spiralling service charges.
This is not just because the service charge is deemed too high, but that in some cases it actually makes the mortgage unaffordable to first-time buyers when it’s factored into a lender’s affordability checks.
‘Lenders treat service charges as a fixed monthly commitment, exactly like credit card debt or car finance,’ says Coe.
‘Over the last two years, building insurance premiums, maintenance costs, and cladding-related expenses have driven service charges up significantly – it is no longer unusual to see modest two-bedroom flats with fees exceeding £3,500 per annum.
‘When this is plugged into a lender’s affordability calculator, it eats into the applicant’s maximum borrowing capacity, turning a previously viable mortgage offer into a decline.’
