When people budget to buy a flat in the UK they usually focus on the mortgage, deposit and whether they can cope if interest rates go up. That’s sensible, but it’s definitely not the whole picture. If you’re buying a leasehold property (including many shared ownership homes) you also take on service charges.
These are typically service charges on leasehold are monthly fees for running and maintaining the building. Given the rise in costs since COVID you can see that service charges on leasehold property can rise sharply too. Put simply, mortgage stress tests are common. Service charge shocks are still an un-noticed risk when it comes to stress testing.
Why service charge stress testing for leasehold property matters
There are millions of leasehold homes in England. According to Government statistics on leasehold dwellings between 2023 and 2024 there are roughly 4.8 million leasehold dwellings. That’s around 19% of the housing stock. Most of these are flats and apartments, so service charge costs affects a lot of buyers.
At the same time there are a few hundred thousand shared ownership homes (circa around 240–260k households in England). If you aren’t aware, shared ownership is a tenure where owners already pay mortgage on their share. They also pay rent and service charges to the housing provider (usually a housing association).
Service charge spikes can expose shared owners
When service charges spike, shared owners are particularly exposed. This is because many are financially stretched from the start as it’s primarily a tenure aimed at first time buyers or those looking to get back on the housing ladder where outright purchase is out of reach.
What a service charge on a leasehold property actually covers
A service charge is the way a landlord or managing agent recovers the costs of communal services and upkeep set out in the lease. Typical items are building insurance, cleaning and lighting of communal areas, lift maintenance, communal heating, grounds maintenance and contributions to a sinking fund for major repairs (like a new roof or external works).
Your lease should explain what can be charged and how costs are apportioned. You have a legal right to see a summary and supporting paperwork for the charge.
How service charge hikes can become a nasty surprise
Recent coverage in national news and campaigns show service charges can jump, sometimes dramatically. The main drivers are rising inflation in construction and maintenance, higher energy and insurance costs. There’s also external managing agent fees and the expensive building-safety work that followed Grenfell.
There are real cases where residents saw annual bills run into the thousands. Therefore, campaigners are pushing for greater transparency and accountability. That’s not to say every development is a problem, but the risk is real enough to plan for.
Don’t just rely on mortgage stress testing alone
Mortgage affordability checks normally stress test mortgage repayments against higher interest rates. However, what about for shared ownership and leasehold purchases? Some lenders may already do some checks. However, this needs to be highlighted more to stop potential purchasers being blindsided by big service charge cost increases. Better education on service charges would be really useful to those looking to buy a leasehold property.
Historical service charge levels don’t guarantee future increases won’t be large. Also buyers are sometimes given optimistic upfront estimates. Always treat published or quoted figures as provisional, not guaranteed.
There is a really useful shared ownership affordability calculators guidance paper from Homes England which is worth a read.
Service charge checklist
Here is a quick homebuyer’s checklist. Some really good things to ask for and check before you sign:
- Service-charge history: Get the last 3 to 5 years of actual service-charge accounts and invoices, and the current year’s budget/estimate. Look for large one-off items and the trend. If it is a new build try to find out what the housing provider charges on similar properties if you can.
- Sinking fund (reserve) position: Is there a reserve for major works? If it’s tiny but the building is old, expect big bills later. The Leasehold Advisory Service has some great pointers here. Again, if it is a new build there will not be a sinking fund, but it is worthwhile finding out what this could look like and how much you have to put aside for these costs so they aren’t a massive shock when they come up.
- Planned/anticipated works: Ask whether any major external works are planned or likely (cladding, roofs, balconies, external redecoration). Who decides on major works and how are costs apportioned. If it is a new build it is worth finding out a rough idea of works that could be needed within the next 5 years.
- Management arrangements: Who manages the building. Is it the freeholder, a housing association, or an external managing agent? Check recent minutes, complaints or Ombudsman outcomes if available. Again, if it is a new build there will be no minutes, but you will be able to find out who the manager is.
- Caps, reviews and dispute routes: Does the lease include any cap on increases? What rights do leaseholders have to see breakdowns and to challenge unreasonable charges (First-tier Property Tribunal, Leasehold Advisory Service, Housing Ombudsman)?
- Factor into your monthly budget: Add a healthy cushion (for example, 10–30% above quoted charges depending on age/condition) to your monthly affordability calculations and think about a contingency pot for unexpected large works.
Stress test your service charge costs when buying shared ownership
Shared ownership buyers already pay for both a mortgage and rent. The government’s own affordability guidance for shared ownership explicitly includes service charges in the affordability calculation, but that still relies on the accuracy of the figures supplied at point of sale. Ask for the same documents above and factor potential service charge inflation into your long-term plan (staircasing to full ownership will not remove communal costs until you also own the freehold or the management arrangements change).
What to do if your service charge increases after you buy
You have rights! Request a full breakdown, ask to see receipts and contracts, raise concerns with your freeholder or managing agent. If necessary, escalate to the Leasehold Advisory Service, the Housing Ombudsman, or the First-tier Property Tribunal. Collective action (working with neighbours) can also be effective. Recent high profile disputes show that escalation and publicity sometimes force change — but prevention is always better than cure.
Do your own affordablity check and take account of service charge rises
When buying a leasehold property, especially shared ownership, treat service charges as important as mortgage and rent payments. If needs be stress test them yourself. If it is a resale property ask for records, probe the management and sinking fund position. Also it is important that you add a buffer for rises. That small extra step at the purchase stage could save you from a shock monthly bill a few years down the line.
