The Property Institute (TPI) have published a residential Service Charge Index Report. The report will be issued annually and has been introduced in response to concerns around escalating service charge bills. TPI has reported an average service charge increase of 41% since 2019, compared with a cumulative inflation rate of 23% over the same period.
The report aims to clarify the drivers behind rising costs, providing averaged data on service charge expenditure.
The Service Charge Index is based on data from
- 13,754 homes, across 108 estates;
- 46% are estates with blocks 18 metres or above;
- 29% are estates with blocks 11-18 metres; and
- 25% are estates with blocks under 11 metres.
Key takeaways from the Index
Average Service Charge Costs/Budgets per estate
The average service charge costs have increased by 3% from 2023-24. The average per estate in 2024 was £467,138 (£3,634 per leaseholder).
Expenditure
The cost-of-living crisis and the Building Safety regime have naturally impacted rising service charges, with significant increases for such essentials as building insurance, utilities, health & safety, repair and maintenance, and management fees.
Cost proportions
The largest expenditure categories, as a proportion of the total service charge bills, in 2024 were onsite staff costs (24%), buildings insurance (17%), repairs and maintenance (15%), and contribution to reserve funds (15%).
Buildings insurance has seen the greatest percentage increase between 2019 and 2024, with a 92% rise. Utilities have increased, in the same timeframe, by 73% and general health & safety by 40%.
Future enhancements
As this is the first Service Charge Index the TPI have published, there are understandably some limitations to the data samples.
The sample itself is small (108 estates); other cost drivers, such as age and location of the building (although identified), do not appear to have been factored into the index; and the cost descriptions are not clear, for example it is uncertain what is included within onsite staff costs and general expenses.
To ensure the Index is a beneficial and impartial report for both managing agents and leaseholders moving forward, it could be published by an independent body. An increased data sample would give more substance to the findings, along with acknowledging the differing cost drivers of location (particularly London), as opposed to presenting averages for all combined data.
The Index does acknowledge some of its limitations, making reference to the fact that it does ‘expect there to be differences in costs across the regions, but the regional breakdown has not been analysed.” The TPI then go on to say that future editions of the Index will feature a regional breakdown. There is also an intent to increase the sample size moving forwards, enabling greater insight on cost drivers and trends.
How M+A Partners can help
Residential service charge accounts should be prepared in a transparent and consistent manner. M+A Partners has an experienced team of service charge accounting professionals, providing services to both the residential and commercial sectors. For any queries on service charge accounting or to find out more about the services we offer, please get in touch with me using the details below.
Commercial Service Charge Accounting