Almost two million flats in England and Wales may carry service charges high enough to restrict potential buyers accessing a mortgage, leaving owners with fewer potential selling options in an already difficult property market.It comes as Zoopla data in July showed more than two-thirds of one- and two-bedroom flats listed in 2026 remained unsold, while wider buyer demand had dropped 15 per cent year on year.Hamptons estimates that more than a third (37 per cent) of flats have an annual service charge exceeding one per cent of their value, up from 29 per cent five years ago. Across the 5.4m leaseholders covered by its index, that equates to around 2m properties in total.The one per cent level is significant because some lenders apply greater scrutiny when charges rise above it. Hamptons found that flats with service charges at or below one per cent of their value were 50 per cent more likely to find a buyer last year than those where the charge was two per cent or more.The problem has been compounded by charges rising as some flat values have fallen. This can push a property above a lender’s threshold - even if the service charge itself has not increased sharply.How high service charges can derail a saleThe average leaseholder in England and Wales paid £2,405 in service charges last year, equivalent to just over £200 a month, according to the Hamptons Service Charge Index.That was 4.6 per cent more than in 2024 and close to a third higher than five years earlier.Meanwhile, nearly one in five flat sellers in England and Wales sold their property for less than they had originally paid last year.Service charges make ongoing costs more expensive in a flat (Getty/iStock)Aneisha Beveridge, head of research at Hamptons, says: “Service charges have become one of the defining factors in a flat's saleability. Buyers don't just look at the purchase price anymore, they look at the monthly cost of ownership.Get a free fractional share worth up to £100.Capital at risk.Terms and conditions apply.Go to websiteADVERTISEMENTGet a free fractional share worth up to £100.Capital at risk.Terms and conditions apply.Go to websiteADVERTISEMENT“A high service charge can make a flat feel significantly more expensive, and sometimes unmortgageable, even if the asking price looks attractive.”Hamptons estimates that around one in seven (14 per cent) flats now have charges exceeding two per cent of their value, while around one in every 16 flats has a charge exceeding three per cent - properties which are disproportionately found in city centres.Will a lender refuse the mortgage?A service charge above one per cent doesn’t automatically make a flat unmortgageable. Lender policies vary and valuers may consider the building, the reason for the charge and whether it’s likely to affect future demand.Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “There is no hard and fast rule. Lenders such as Barclays, Halifax and NatWest will rely on the valuer’s comments as to whether the conditions are onerous.“If the annual service charge is greater than one per cent of the value of the flat, then Nationwide will refer to the valuer who will be more forensic in their review and recommendations, by looking at management accounts or sinking funds etc. Generally, a service charge of less than one per cent should be acceptable to most lenders.”Harris says: “If they continue to rise, this could impact the resaleability of the property when you come to sell, as the greater the charge, the more likely the pool of potential purchasers will shrink.”Lenders may also examine whether the charge reflects structural problems or planned works, and whether the building has enough money set aside for future repairs.Different lenders have their own rules over affordability (Getty/iStock)What can sellers do?Ask the freeholder or managing agent for recent accounts, the current budget, reserve fund details and information about planned works, as buyers and lenders are likely to request them.Being able to explain exactly what the charge covers may also help. A £3,000 bill that includes buildings insurance, heating, a well-funded reserve and substantial communal maintenance may be easier to justify than a similar amount supported by unclear accounts.Beveridge says: “For owners, there are often limited options in the short term. Beyond challenging unreasonable charges where appropriate, the best approach is to be transparent about what the costs cover and to price the property realistically to reflect the higher ongoing costs faced by a buyer.”The asking price may need to account for the buyer’s annual costs. Cutting the price alone will not always solve the mortgage problem, however, because a lower valuation makes the charge a higher percentage of the flat’s value.Harris recommends speaking to a whole-of-market mortgage broker, who can identify lenders more likely to accept the property. A buyer with a larger deposit may pass affordability checks more easily, although the lender may still have concerns about future resale.Can you challenge a service charge?Leaseholders have the right to ask for a summary of how their service charge was calculated and inspect supporting paperwork such as invoices and receipts.A charge may be challenged if the costs are unreasonable, the work was unnecessary or completed to an inadequate standard, the lease doesn’t permit the charge, or the landlord failed to follow the required consultation process.If an agreement can’t be reached, leaseholders in England can apply to the First-tier Tribunal, while those in Wales can use the Leasehold Valuation Tribunal. The Leasehold Advisory Service recommends seeking advice before applying.Owners should continue paying while a charge is disputed, as the landlord may otherwise take recovery action.When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.