Residents trapped with service charges of up to £8,000 a year to take legal action against government

Residents trapped in properties marketed as “affordable” are planning legal action against the government after being hit with service charges of up to £8,000 a year.

Shared-ownership homes are designed to allow people to get on the property ladder, with residents taking a mortgage on a share and paying subsidised rent on the rest. However, there are also service charges, which can initially be £250 to £350 a month. Once sold, some residents discover these charges can rise to £600 a month or more.

The Social Housing Action Campaign (Shac) will this week submit a dossier to the National Audit Office (NAO) on alleged service charge abuses, warning of inaccurate bills, overcharging and a failure to provide residents with supporting evidence of costs.

It plans a judicial review if the National Audit Office refuses to investigate, warning that a chunk of the service charges are footed by the taxpayer in the form of housing benefit.

An investigation by the Observer reveals:

Residents in affordable homes at a former pickle factory in London, who face service charges of up to £8,000 a year, say they must enter their flats through a “poor door”. Private flats benefit from an entrance with a concierge funded by all residents.

Housing association officials are warning residents in affordable properties who face service charge increases of up to 83% over two years that, if they don’t pay, they could be served notices “seeking possession” of their homes.

At one development with affordable homes, residents were charged more than £2,200 for a “lamp test” and repair. There were also charges of £1,218 for workmen to replace 14 light bulbs – an average of £87 for each light bulb, according to information compiled by Shac.

Suzanne Muna, from Shac, said the scandal of service charge abuse affected tenants in social housing, residents in shared-ownership homes and other leaseholders. She said: “We have found that service charge accounts are riddled with errors. There has been no proper scrutiny of these accounts.”

An analysis by Shac of property tribunal rulings in 2024 found that residents in service charge disputes had been overcharged in more than 70% of cases.

Service charge income for housing associations in England rose by 15.8% to £1.95bn in the year to March 2024, according to figures compiled by the Regulator of Social Housing.

Housing associations are also being challenged by residents over why service charges for shared properties increase so dramatically after sale. Campaigners are calling for regulation to prevent hefty increases once a sale is concluded.

Residents at the former Crosse & Blackwell factory in Bermondsey, southeast London, known as the Pickle Factory, say they can no longer afford their affordable homes because of service charge increases. Residents in the affordable flats contribute to all the services in the development but enter their flats via modest lobbies, described as “poor doors” by some residents, compared to the grander entrances with concierge desks.

At another development in Islington, north London, with affordable shared property homes provided by the Peabody housing association, residents face demands for service charges which, for some, have increased to more than £7,400 a year.

Residents have been sent letters warning of the risk of repossession of their homes. They say it is almost impossible to sell their properties and move out because of the exorbitant service charges.

Wayne Baxter, 43, who works in marketing, said his service charge had increased in just two years from £337 a month in 2022/23 to £617 a month in 2024/25. He bought a 25% share in the £670,000 flat in February 2020.

“We are stressed beyond belief,” said Baxter. “I’m losing so much sleep. These are not affordable homes. If we were told the service charges would be going up to £600 a month, I wouldn’t even have looked at this development.”

He said Peabody and the estate management firm had failed to provide a detailed breakdown of the charges and supporting evidence for the bills.

Residents in affordable homes at the development have stopped their direct debits for the service charges. They are now demanding a detailed breakdown of the charges, but are being sent “urgent” demands by Peabody for as much £6,000.

The guidance is that, in affordable homes, rent and service charges should not exceed 40% of income, but this is now regularly breached because of the hefty increases in service charges once residents move in.

Many residents across the country are refusing to pay service charge increases, which have been imposed without any breakdown of the bills.

At another Peabody development in east London, people in affordable flats have successfully challenged excessive charges. The refunded charges, seen by the Observer, include the cost of testing and replacing a lamp, with the bill cut from £2,280 to £253. There was also a £49,085 refund for communal boiler costs and a £9,000 refund on repairs to access gates to the development.

Shac wants new laws for disputing service charges, with a regulator to oversee service charges. It wants penalties imposed on private landlords, councils and housing associations for unfair, inaccurate and unreasonable service charges.

The Leasehold and Reform Act 2024 aims to improve the transparency of service charges and give leaseholders a new right to request information about these charges and the management of their building. Ministers have said they will consult this year on the act’s provisions on service charges, bringing the measures into force as quickly as possible.

A spokesperson for Peabody said: “We really sympathise with residents who are bearing the brunt of rising costs, and share concerns about increasing service charges set by external managing agents.

“We never make a profit on service charges and advocate on behalf of residents to ensure charges are calculated accurately and transparently. Charges listed on sales adverts should accurately reflect what residents can expect to pay. We’re aware of the issues raised and are looking into residents’ concerns.”

The NAO said: “We carefully consider all correspondence received in line with our remit to audit government spending.”

A Ministry for Housing, Communities and Local Government spokesperson said: “Far too many leaseholders and social housing tenants across the country are being asked to pay unreasonable and extortionate charges.

“All service charges should be reasonable by law, and we will keep any action towards landlords under review.

“We will also consult this year on implementing measures in the Leasehold and Freehold Reform Act to drive up transparency of service charges and hold landlords to account for the money they spend.”