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More annual service charges now breach £1,000 – Hamptons

  • 29/04/2024
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More annual service charges now breach £1,000 – Hamptons
The number of flats with an annual service charge bill of less than £1,000 could become a thing of the past in 10 years’ time, analysis from an estate agency group suggested.

The Hamptons Service Charge Index found that, in Q1 2024, just 19% of flats had a yearly service charge of less than £1,000 and, based on the current trajectory, this could reduce to zero. 

By comparison, a third of flats had a service charge of less than £1,000 per year in 2016. 

The inflation of goods and services hiked up the charge costs for leaseholders in England and Wales, Hamptons said, with an 8.4% increase between Q1 2023 and Q1 this year.

This was more than twice the rate of inflation and the fastest yearly growth since Hamptons’ records began. In monetary terms, this was a rise of £175 per year. 

By the end of Q1, the average service charge on a flat came to £2,247 per year, 31% higher than the same period in 2019. 

Hamptons said that as the charge is usually set on estimated costs, the impact of rising inflation on service charge costs tends to be slower. 


The London premium 

In London, just 14% of flats had an annual service charge that was lower than £1,000 per year. 

Additionally, the average annual service charge in the capital came to £2,581, which was a 9% increase on the last year. 

Service charges in London are higher than anywhere else in the country, Hamptons said, due to the higher cost of living in the capital and complex city buildings requiring inflated running costs. 


Four-figure service charges 

Hamptons’ research showed that the average service charge for a one-bed flat in England and Wales came to £1,940 in Q1, with three-quarters of leaseholders paying more than £1,000 per year. 

For a two-bed flat, the average came to £2,311, with 84% of leaseholders paying more than £1,000 each year. 

This rose to £3,044 for a three-bed flat, making it the first time the annual service charge exceeded £3,000. Some 89% of leaseholders in three-bed flats were paying more than £1,000 per year. 

The charges are more than £2,000 in half of the 10 regions across England and Wales, the Hamptons research found. By comparison, no region in England or Wales had a service charge above this level in 2019. 

In the year to Q1 2024, some 81% of service charge bills rose. Additionally, around 5% of leaseholders pay more than £5,000 per year in these costs. 


First-time buyers exposed to rising costs 

Hamptons said that, as a larger share of first-time buyers were buying flats, more were exposed to rising service charge costs. 

According to its analysis, this reached a record 36% share in Q1. Hamptons warned that the charge costs could limit the borrowing power of new homeowners. 

First-time buyers have surpassed landlords as the second-largest buyers of flats in 2016 and Hamptons said if the current trend continued, they would also overtake homemovers by 2026. Homemovers currently hold a 47% share of all flat purchases. 


Buyers becoming wary of costs 

David Fell, lead analyst at Hamptons, said: “Rising service charges mean buyers are increasingly wary of the additional ongoing cost to their home purchase and are carefully weighing up the value for money they offer. Higher mortgage rates have already financially squeezed many would-be flat buyers, and with more taking on service charges as well, it’s often limiting how much they are able to borrow from the bank.

“With buyers going through service charge accounts with an increasingly fine tooth comb, they’re more informed than ever about how much they’ll be paying each month and what they’ll be getting back. This means the value of flats where the service charge is disproportionate to the services on offer has come under downward pressure.”

He added: “Service charges are usually based on forecasted running costs for the year ahead. But inflation has been pushing these costs above what was pencilled in, meaning today’s higher bills reflect inflation [that] has been running hot for much of the last 18 months.

“Alongside this, the first generation of city-centre flats are now 30 years old and are starting to show their age, often approaching the point when they need an injection of cash.” 

Earlier this month, thousands of people signed a petition against service charge ‘abuse’.

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