By Francesco Rassu, co-founder of VeraHold
A flat’s service charge can influence what buyers offer, whether they obtain a mortgage and how confidently they proceed. Protecting its value therefore requires more than controlling this year’s bill. Buyers also need to understand what the money maintains, which future costs are funded and where uncertainty remains.
Hamptons found that flats marketed with service charges of 1% or less of their value were 50% more likely to find a buyer in 2025 than those at 2% or more. This does not establish a precise valuation discount, but provides evidence that high charges can materially affect marketability.
How costs influence value
Higher recurring costs leave owner-occupiers less income for mortgage repayments and reduce landlords’ net rental income. Unexplained increases or uncertainty around major works can create further pressure, as buyers may discount their offers to account for costs they cannot yet quantify.
Lending criteria can reinforce this effect. Nationwide, for example, refers cases where annual service charges exceed 1% of the property’s value to its valuer. This is a referral threshold, not an automatic refusal or a market-wide rule. If prices fall while charges remain unchanged, that ratio rises. A price reduction intended to attract buyers may therefore increase lender scrutiny without resolving the underlying problem.
There is no universal formula for translating service charges into lost capital value. Valuers must consider comparable transactions, lease terms, building condition and evidence of buyers’ responses.
A low bill can conceal a larger liability
Consider two otherwise similar flats. One pays £3,000 annually, including £900 towards a properly costed reserve for an approaching roof replacement. The other pays £2,100, has no reserve and faces the same work. On the surface, the second flat appears cheaper to run; its lower advertised charge may simply conceal an unfunded future liability.
The Property Institute’s 2026 sample of 117,052 homes across England, Wales and Scotland recorded average budgeted charges of £2,418 in buildings under 11 metres and £4,447 above 18 metres. These are sample averages, not benchmarks for individual buildings. Height, amenities, services and long-term maintenance needs all affect what a reasonable charge might look like.
Reserves therefore need to be assessed against the works they are intended to fund. An accounting balance alone does not establish that sufficient cash is available, ring-fenced and uncommitted. Keeping charges artificially low by deferring maintenance can also weaken the building and its finances.
What leaseholders and directors can do
Start before a sale. Ask the managing agent to reconcile several years of budgets against actual expenditure, separating running costs, reserve contributions, exceptional works and historic deficits. Investigate material increases through contracts and invoices, check charges and apportionments against the lease, and seek comparable tenders using the same service specification.
Connect this financial review to the building’s physical needs. The RICS residential management code recommends costed long-term maintenance plans to inform reserve contributions where the lease allows. A capital expenditure, or “capex”, plan identifies major building components and estimates when repairs or replacements will be needed and what they will cost. Comparing these with reserves and projected contributions can reveal whether today’s charge is sustainable or simply postponing a funding gap. Reducing contributions without reducing maintenance requirements merely postpones the cost, potentially leaving leaseholders facing a much larger one-off demand.
Where explanations remain inadequate, leaseholders can pursue the landlord or managing agent’s complaints process or, in England, ask the First-tier Tribunal to determine whether variable service charges are payable or reasonable. Seek professional advice before withholding payment.
Where poor management is the underlying problem, qualifying leaseholders can consider Right to Manage without proving fault, or collective enfranchisement for broader ownership control. Applying to the tribunal for appointment of a manager requires statutory grounds, while resident-controlled boards can review their managing agent’s contract and performance.
Each option carries costs and responsibilities, and the building must still be maintained.
Before marketing, sellers should assemble a concise financial picture alongside conveyancing information: current charges, reasons for significant changes, the level and purpose of reserves, known or planned major works, the flat’s apportionment and unresolved disputes. For historic building-safety defects, check statutory protections and external funding before assuming leaseholders must pay. Clear evidence helps buyers assess liabilities and reduces the uncertainty that can weigh on offers.
What reform will change
Reform may affect valuation through ownership costs and better disclosure. In July 2026, the government confirmed plans for greater service-charge transparency in England from 2027, including standardised demands, annual building reports and stronger information rights. This should help buyers and valuers assess recurring costs, reserves and future works, while potentially exposing previously hidden liabilities.
The draft Commonhold and Leasehold Reform Bill proposes a £250 annual ground-rent cap and greater use of commonhold. Lower liabilities or greater resident control could make some flats more attractive, but insurance, maintenance and capital expenditure remain necessary. Their effect on resale values will depend on changes to costs, risks and buyer demand, so an automatic increase cannot be assumed.
Making the evidence useful to valuers
Benchmarks are most useful when they compare similar buildings and services. Height, age, lifts, staffing, location and the number of homes sharing a cost all matter. Comparisons should use the same period and tax basis, distinguish budgets from expenditure, and disclose the sample and its limitations. An unusually high figure warrants investigation; it does not prove overcharging.
For valuers, there is also value in linking transaction evidence to the building’s financial position at the time of sale. A comparable sold before substantial unfunded works became known may tell a different story from one sold afterwards. Separating amounts already provided for through reserves from outstanding liabilities also helps avoid counting the same future cost twice. At VeraHold, we analyse building finances by connecting accounts, budgets and supporting documents, with human review of significant findings. We are developing benchmarking around comparable buildings and documented evidence to help residents and property professionals understand whether costs are unusual, justified or likely to create future
Better information may expose a problem or explain why a higher charge is justified. Its contribution to valuation is a more transparent and defensible assessment of what the buyer is taking on.
