In recent years, service charges have risen dramatically, placing increasing pressure on buyers considering property in Central London. Our vastly experienced Partner Philip Eastwood explains what is driving the rises and how to ensure a sound investment.
Service charges on leasehold properties in Central London have risen exponentially in recent years. The Property Institute reports that between 2019 and 2024, the average service charges across the UK increased by 41%, compared with a rising inflation rate of 23% in the same period. In London, service charges typically stand at 24% above the average for England and Wales.
This hike is largely driven by rising energy costs, escalating insurance premiums and the natural ageing of high-specification developments. Buyers who are not attuned to these costs could easily find themselves burdened with unexpectedly high outgoings that far outweigh the standard of services, making the guidance of a specialist buying agent crucial.
Why Service Charges are Increasing
A confluence of factors has created the perfect storm for rising service charges. Many large developments purchase utilities at commercial rather than residential rates, which has led to exponential increases in energy costs. Insurance premiums have also risen, while maintenance expenses continue to grow as buildings age.
Luxury developments that once seemed to offer an attractive lifestyle with impeccable communal areas and amenities such as pools, gyms and concierge services are now seeing the reality of long-term upkeep. A 10- to 15-year-old development requires significant reinvestment, with costs frequently passed on to residents. The result? Service charges that can now represent a staggering percentage of a property’s value.
The impact is particularly noticeable in concierge buildings, where charges have soared, sometimes exceeding 1% of the property’s purchase price annually. Buyers will accept high charges in return for impeccable service and premium facilities; you only have to look at the number of first-class restaurants and hotels in London which are frantically busy despite charging huge amounts. Yet there is an understandable resistance to charges that feel disproportionate to the quality received – and demand for such properties is likely to suffer as a result.
Key Considerations for Buyers
Before committing to a property with a service charge, a meticulous evaluation is essential. Buyers should be asking:
- Precisely how is the money being spent? A large sinking fund with little reinvestment in the building could indicate a lack of necessary maintenance.
- Are the facilities worth the cost? A pool or gym might seem appealing, but if it’s ageing and you’re unlikely to use it, or you could become a member of a rather nice gym around the corner instead, is it really worth the substantial ongoing cost?
- Is there transparency? Many listings provide only vague details about lease length and service charges which are often handled by an external management company, leaving buyers in the dark.
There’s little point in investing heavily in a beautifully refurbished apartment if the building itself is not well maintained – akin to upgrading a luxury suite on a ship that is no longer seaworthy.
Where a Buying Agent Adds Value
Navigating the complexities of service charges requires more than a cursory glance at the figures. With limited transparency from many selling agents, buyers often do not receive the full picture until they are deep into the legal process of the purchase.
We ensure that service charge details are scrutinised from the outset, asking the pertinent questions that others might prefer to avoid and pushing for clear answers. How much of the charge goes to actual maintenance rather than management fees? Are future capital works planned? Are costs likely to rise further?
Too often, service charges are dismissed with a casual ‘it is what it is’– but for buyers, especially those purchasing as an investment, these figures matter. I recently came across a rather nice two-bedroom, 1,200-square-foot apartment in Battersea for a client’s daughter with an annual service charge of £5,000. When added to council tax, utility bills and mortgage payments, the overall financial burden is significant. Such figures are dissuading buyers and will ultimately impact property values.
By engaging with a specialist buying agent, buyers gain an essential advantage. Our ability to dig into the finer details, challenge ambiguous charges and provide informed guidance can make all the difference between securing a sound investment and acquiring a financial liability. In a market where costs are only set to rise, this level of diligence is more important than ever.
Philip Eastwood is our specialist Partner in London
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