Service charge too high for your mortgage? What lenders look at, and what you can do
When my own service charge climbed, the first time it really hurt wasn't the bill. It was the remortgage.
A service charge isn't just a monthly cost. Lenders count it when they work out what you can afford, and buyers' solicitors ask about it before anyone exchanges. A charge that's high, rising fast or in dispute can make both harder. Here's what's going on, and what you can do about it.
Why lenders care about your service charge
- Affordability. Lenders treat the service charge as a committed outgoing, like council tax. The higher it is, the less they may lend.
- Risk to the property. A big or fast-rising charge can signal major works ahead or a building that's expensive to run, which can affect what the flat is worth.
- Valuation. A surveyor valuing the flat for the lender will take the running costs into account.
What buyers and their solicitors see
When you sell, the buyer's solicitor asks the managing agent for the service charge history, budgets, planned major works and any disputes, and you'll be asked about disputes yourself. A high charge can put buyers off or push the price down. An open dispute has to be declared, so if you're planning to sell, challenge early rather than mid-sale.
What you can do
- Get the facts: the budget, the accounts and a written summary of costs. See section 21 summary of costs.
- Check every big line against your lease and the law. How to challenge a service charge walks through it.
- Look for the common problems: major works without section 20 consultation, costs billed too late under the 18-month rule, and a share that doesn't match your lease.
- Talk to your neighbours. Everyone on the same budget pays the same costs, so a lower charge helps the whole building's values.
Bringing the charge down helps twice: lower monthly costs now, and a flat that's easier to remortgage or sell later. That was my own experience.
This is general information, not mortgage or legal advice. For your own remortgage, speak to a broker, and for a dispute, to LEASE or a leasehold solicitor.
General information about leasehold law in England, not legal advice.