Buying a home through Shared Ownership can make getting on the property ladder more affordable - but alongside your rent and mortgage, you’ll also need to budget for a service charge.
This guide is designed to give you a clear and straightforward understanding of service charges; what they are, how they work, and what they mean for you when buying with Peabody.
What is the service charge for?
A service charge is a payment you make to your housing provider to cover the upkeep, running costs, and management of your building and the shared spaces. Unlike your mortgage or rent, which pay for your individual home, service charges relate to communal services and shared facilities such as a gym or garden.
Examples of some typical services funded by the charge include:
- Cleaning and caretaking of communal areas like hallways, stairways, and bin rooms.
- Grounds maintenance, such as lawn mowing and planting.
- Utilities for shared spaces, e.g. lighting in corridors or lifts.
- Repairs and maintenance of common areas and equipment.
- Buildings insurance (for the structure of the property, not your contents).
- Security features such as entry phone systems or CCTV.
- Lifts and fire safety equipment.
Some of your payment may also go into a reserve (or sinking) fund, which spreads the cost of major works, for example, replacing a lift, so you don’t face a sudden large bill.
Importantly, service charges do not usually cover things inside your own flat, like heating, hot water, or appliance repairs. Those remain your responsibility.
How is the service charge calculated?
At Peabody, service charges are worked out annually and run from April to March. The process is designed to reflect the actual cost of maintaining your building and shared spaces.
Here’s how it works:
1. Estimates – Before the start of the financial year Peabody will create an estimated budget based on the expected running costs, known contract costs (e.g. for cleaning, gardening, etc), for your building and shared space. This estimate also accounts for any anticipated increases, such as rising energy bills. You are then asked to pay the estimated amount for the upcoming year in monthly instalments.
2. Reconciliation – Once the financial year starts, we’ll complete works and provide services to your building and shared spaces. At the end of the year, we review these to understand what was actually spent. If there was a difference between what we initially estimated and what was actually spent, we will either request an additional payment or give you some money back.
This means that although service charges can vary from year to year, Peabody will only ever seek to charge you the cost we incur for managing your building or shared space. We don’t make any profit from service charges.
3. Your share of the costs – The method we use to work out your share of the costs is known as ‘the apportionment of costs’. The method used can vary and may be based on:
- The size of your home (e.g. larger properties pay more)
- You may pay an equal share of the costs
- You may have a fixed percentage defined in your lease
The way in which charges are apportioned will be confirmed in your lease. Most Shared Ownership leases state that the method of apportionment should be ‘fair and reasonable’. Your share of the costs and the method used to work this out will be clearly shown on your service charge statement.
How costs are apportioned can also depend on where the service is provided. For example, you may have services which are provided to your building or your estate.
4. Reserve fund / sinking fund contributions – Part of your service charge is allocated to a reserve or sinking fund to cover large items of expenditure (e.g. a roof or lift replacement). Your contributions will be held by Peabody and used to offset any future bill for major works.
5. Transparency – You’ll receive a written statement of account, including details of what was spent and your rights under housing law (such as the Landlord and Tenant Act 1985 and 1987).
What is a sinking fund service charge?
A sinking fund (sometimes called a reserve fund) is money set aside from your service charge to cover major works in the future. Instead of facing a sudden, large bill for something like replacing a roof, upgrading lifts, or carrying out structural repairs, residents contribute smaller amounts each year.
At Peabody and other housing associations, these contributions are included within your annual service charge estimate. You’ll usually receive an annual statement showing how much has been collected and what the balance of the reserve fund is.
This approach spreads costs fairly across all residents over time and helps avoid financial shocks when big projects are needed.
How are sinking fund contributions calculated?
The amount paid into a sinking fund is usually set as a portion of your annual service charge. This figure is carefully calculated based on:
- The estimated lifespan of shared assets (e.g., lifts, roofs, fire systems)
- Anticipated replacement or repair costs
- Expert assessments from surveyors and maintenance contractors
- A review cycle (often every five years) to adjust for inflation or updated timelines
Funds are typically held in a separate, interest-bearing account, with the accrued interest reinvested into the fund.
Any homeowner who benefits from shared services or communal areas is generally required to contribute, as outlined in their lease agreement.
Do I pay the full service charge if I only own a portion of my Shared Ownership
Yes - as a Shared Ownership homeowner, you are responsible for 100% of the service charge, regardless of what percentage of your home you own.
This is because the service charge covers the whole building or estate, and all residents benefit from the communal services provided. It’s separate from your rent and mortgage, and it isn’t reduced based on the share of the property you own.
In other words, your ownership percentage affects your rent, but not your service charge liability.
How is the service charge paid?
At Peabody, the service charge is normally billed alongside your rent, and you’ll pay it as part of your monthly payments.
- For leaseholders and shared owners, it is itemised separately from your rent in your account statement.
- For some tenancies, especially affordable or intermediate rent schemes, service charges may be bundled into the total rent figure.
You’ll usually receive:
- An estimate at the start of the year (April to March) showing what you’re expected to pay.
- An annual statement of actual costs after year-end, showing whether there’s a surplus or deficit.
If there’s a shortfall, it will usually be added to your next bill. If there’s a surplus, it can be credited back or carried forward.
See our page on how to pay your service charge for more information.
Frequently asked questions about service charges
It usually covers the cost of maintaining and running communal areas and services. This can include cleaning, gardening, lighting, lifts, entry systems, repairs to shared spaces, and buildings insurance. Some of your payment may also go into a reserve or sinking fund for future major works.
Generally, there is no legal cap on how much a housing association can charge. However, charges must be reasonable under housing law, and some government schemes or local councils may set caps for certain developments. Always check your lease and ask your provider for details.
Yes. Service charges are usually reviewed annually and can rise if the actual cost of providing services goes up - for example, due to higher energy bills, contract changes, or unplanned repairs. They can also fall if costs are lower than expected.
If you would like additional information or would like to dispute a charge included in your service charge, you should raise it with us first. You can also seek independent advice on any service charge issue you have. The Leasehold Advisory Service (LEASE) (https://www.lease-advice.org) is a free government funded advice service who will be able to assist you with your issue free of charge.
Should you be unable to resolve your issue you also have the right to make an application to the First-tier Tribunal (Property Chamber) for a determination, which can decide whether a service charge is reasonable and payable.
If you spot an issue with your service charges bill, please contact us.
