Property Service Charges… | MIH Property Management

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… a 41% increase since 2019!

We look at a particularly hot topic – the increase in service charges in the residential property market.

If you’re a leaseholder, you’ll no doubt be well aware of the impact of service charges and what can seem like the disproportionate increase in costs in recent years. If you’re renting, then its highly likely that these costs have been passed onto you as the current resident and sometime beneficiary. If you’re a freeholder/owner/landlord, they you’re very likely walking a fine line between new legislation, profit and loss.

What’s going on?

According to The Property Institute (TPI), the voice of the UK residential management profession…

“services charges have increased an astonishing 41% since 2019.

… though it should be noted that it has increased just 3% in the last year.
Upon reading these statistics the first question is undoubtedly, why?

To get a measure of this let’s look at what the service charge is covering:

Building insurance premiums
Utilities (e.g. electricity)
Health & safety
Building repairs & maintenance (e.g. cleaning, grounds keeping)
General expenditure
Onsite staff (e.g. concierge)
Reserve or sinking funds
Agency management fees for actioning the above (for those managed independently rather that RTM).

Then add to this some recent events:

Pandemic
Increase in energy costs thanks to the Russia/Ukraine war
Cost of living crisis
Inflation
New building safety regime brought in as a result of Building Safety Act, 2022, which in turn was driven by the impact of the Grenfell Tower disaster.

“In 2024, the average service charge cost was £3,634 per leaseholder.

The Property Institute

Clearly there are reasons, like it or not, which added together conflate to make an unexpected financial burden that not surprisingly many are finding hard to meet. In response to this and in an effort to support leaseholders and their tenants alike, TPI has introduced the new Service Charge Index.

TPI Service Charge Index

This report, which will be updated annually, is intended to track and monitor service charge data in order to analyse trends and look at the affecting factors and causes. Transparency is the key here and understanding why and how these charges have risen is important for managing finances and expectations. Here are a few of the points covered:

Insurance Premiums

The report makes interesting reading and highlights some little-known facts such as the impact of Brexit on insurance premiums. And this besides the obvious effect of The Grenfell Tower fire, which has made the insurance of buildings deemed to be ‘risky’, skyrocket.

Health & Safety

Also top of the agenda as a result of the above, is the matter of Health & Safety – fire risks in particular. The ensuing Building Safety Act (2022) has the occupants’ wellbeing in mind, but as TPI points out, safety comes at a cost. New checks and legislation plus their implementation add to the annual fees. The higher the building the more costly to insure, check and make safe.

Service Charge Transparency

The report has the added benefit of providing a rule of thumb for owners and leaseholders to sense-check service charge fees. Under the recent Leasehold Reform Bill, for example, freeholders and managing agents are prohibited from charging excessive commission for handling building insurance fees.

Management Fees

With fees having risen so dramatically it is worth noting that Managing Agents often get wrongly blamed for rising service charges. In reality, management fees are generally a small proportion of the overall cost.

Service Charges are the monies required to maintain your building and cover many different elements. Spend is divided out as per the example illustration, giving an idea of the division of costs and the increase in each area since 2019. Note in particular (1) buildings insurance, (2) utitities and (3) other professional fees.

The Immediate Future

The property market is ever fluctuating, and each year sees new challenges and corresponding legislation designed to balance and control costs/taxation/safety – all in the name of fairness. For most of us our home is our operational base, our sanctuary and security. For property owners it is a constant challenge to safely manage and maintain a block and still garner some kind of profit.

Overall, it is helpful that professional bodies such as The Property Institute and Homeowners Alliance have our collective interests at heart and are watching over and trying to make good clear sense of it all. Knowledge is power as they say.