Banks are refusing to lend on an increasing number of flats across England and Wales, as soaring service charges push properties past a lending threshold that most buyers have never heard of. Several major lenders now won’t offer a mortgage where the annual service charge exceeds 1% of the property’s value.
That threshold used to sit at 2%. Its quiet reduction to 1% has left a growing number of flat owners effectively trapped, unable to sell because their buyers can’t borrow.
Data from a major industry research firm shows that 37% of flats carried a service charge above 1% of their value in 2025, up from 28% a decade earlier. The direction of travel is stark: more than a third of the country’s flats now sit in territory where at least some lenders will decline to finance them.
Mark Harris, chief executive of mortgage broker SPF Private Clients, confirmed the shift: “While the level does vary between lenders, the 1% red line seems to be a good rule of thumb and if service charges breach this proportion of the property’s value, the lender may decide not to lend.”
He warned that review periods and ground rent levels factor into decisions too, “although legislation changes could make the latter irrelevant.” For borrowers needing higher loan-to-value mortgages, the risk of rejection climbs further.
The logic from banks is straightforward. If a flat carries high ongoing costs, it becomes harder to sell in a repossession scenario. Lenders price for that risk, and beyond a certain point, they simply won’t take it on.
Service charges have risen sharply in recent years, driven by increased building insurance premiums, fire safety compliance work, and the general cost of maintaining ageing blocks. One block manager commenting on the issue pointed to “insurance charges, safety changes such as focus on fire doors and cost of general maintenance” as the primary drivers.
The problem is compounded by the fact that leaseholders have limited control over what they’re charged. Freeholders and managing agents set the service charge, and leaseholders have few effective mechanisms to challenge unreasonable increases.
Research from Propertymark paints a bleak picture. Some 86% of leaseholders saw their service charges increase over the past two years. Of those, 62% reported rises exceeding 21%, while more than a quarter said their charges had jumped by over 60%.
Katie Kendrick OBE, founder of the National Leasehold Campaign, didn’t mince words: “Leasehold remains a life sentence. Despite nearly a decade of commitments, progress has been too slow, too limited, and too easily diluted.”
She added: “Too many leaseholders remain trapped, unable to sell, unable to move, and facing costs they cannot afford. This is not just a failure for leaseholders. It is a failure of the housing market.”
While the leasehold problem is often associated with new-build developments in major cities, it affects flat owners across the country. In Norwich, where apartment developments have grown significantly over the past two decades, buyers and sellers need to be aware of how service charge levels could affect mortgageability.
Coastal developments in towns like Great Yarmouth can be particularly exposed, where property values are lower relative to fixed maintenance costs. A flat worth £120,000 with a £1,500 annual service charge already breaches the 1% threshold. The same charge on a £200,000 property wouldn’t.
For anyone considering buying or selling a flat in the region, The Ivybridge Collection’s property market reports provide location-specific data that can help assess how local values compare to typical service charge levels.
The government has promised new measures to protect leaseholders, with legislation expected “as soon as possible from 2027.” The outgoing Housing Secretary Steve Reed had been working on a draft Commonhold and Leasehold Reform Bill intended to end the leasehold system in England and Wales, but the final bill hasn’t yet reached Parliament.
With Reed’s departure in the Burnham reshuffle and a new Housing Secretary yet to make their priorities clear, leaseholders can’t count on legislative rescue any time soon.
Flat owners thinking of selling should check their service charge against the 1% threshold before going to market. If it’s close to or above that level, a conversation with a mortgage broker is sensible before setting an asking price, because a property that most buyers can’t finance is, in practical terms, worth less than one they can.
For buyers, the message is simpler: ask about service charges before you fall in love with the flat. A competitive asking price means nothing if your lender won’t touch it.
