Mortgage lenders in the UK have introduced stricter rules on service charges for flat purchases, marking a significant tightening of lending standards. Applications where annual service charges exceed 1% of the property's overall value are increasingly being rejected by lenders, who are now more cautious about long-term affordability and resale potential.
Industry experts warn that this new 'red line' could severely impact first-time buyers and those seeking higher loan-to-value mortgages. Mark Harris, chief executive of mortgage broker SPF Private Clients, highlights the 1% figure as a critical threshold for lenders. While some variation exists, exceeding this proportion significantly increases the likelihood of a mortgage application being declined.
The shift in lending criteria comes amid a backdrop of rising service charges across the leasehold sector. Data from Hamptons shows that in 2025, 37% of flats carried an annual service charge exceeding 1% of their value – a significant increase from 28% a decade earlier. Further research by Propertymark reveals that 86% of leaseholders have experienced service charge increases within the last 24 months, with 62% reporting rises greater than 21%, and over a quarter facing increases exceeding 60%.
The implications are particularly acute for first-time buyers, who may struggle to secure mortgages under the new criteria. With average UK house prices standing at £285,000, according to Halifax's latest figures, flats valued at £200,000 with annual service charges of £2,500 would now fall foul of the 1% rule. This could further restrict access to the property ladder, especially in urban areas where flats constitute a significant portion of available housing stock.
Katie Kendrick OBE, founder of the National Leasehold Campaign, expressed ongoing frustration at the lack of progress on leasehold reform, stating that "leasehold remains a life sentence." She highlighted that despite commitments over nearly a decade, many leaseholders remain 'trapped' – unable to sell, move, or afford escalating costs. The government has announced intentions to introduce new measures to protect leaseholders from 2027, though specific details are yet to be made public.