Buy your retirement home with care

Woman with an older couple © iStock
Read the small print and challenge anything you don’t understand

By 2066, a quarter of the UK population will be over 65, according to the latest projections from the Office for National Statistics. That represents a huge and growing market for homes that can meet the needs of an ageing population, and it’s a market that property developers are increasingly trying to address. There are certainly advantages to buying a property within a retirement community – residents retain their independence, but also gain access to support services that should make life a little easier. However, before you make a move, do your research to ensure the benefits outweigh the added costs.

First of all, most of these properties are sold as leaseholds rather than freeholds, which means you’ll have to pay ground rent. This could be as little as £50 a year, but some freeholders charge £300 or more. Before you buy, check on how regularly the rents can be increased or reviewed, and look at the rules or conditions governing any such increases. On top of this, you will have to pay an annual service charge to a management company for housekeeping and care provision. Find out what is covered and how much it costs.

Also ask existing residents (perhaps through a residents’ association) whether the management does a good job or not, and how responsive they are if problems do arise. Finally, you may also be asked to contribute to a “sinking” or “contingency” fund, to cover long-term repairs and redecorations.

That’s all fairly straightforward – the sort of thing you’d expect to pay in any communal living arrangement – but there are other fees, specific to retirement homes, that can take people by surprise. Exit fees (or “event fees”) are typically payable when a property is sold or sub-let, but in some cases might also be triggered when a partner or carer moves in. These fees can come to as much as 30% of the property’s market price, or could be a set percentage, say 1%, for each year you live in the home.

Exit fees are said to enable providers to subsidise service charges during a resident’s stay, which they then recoup when the resident sells up. There may be some logic to this, but transparency is lacking, warns the Law Commission, an independent body that reviews laws in England and Wales. References to exit fees are often hidden in complex leases, or disclosed too late in the process for the buyer to account for them. “It is not always stated in a lease how a fee will be calculated”, agrees the charity Age UK, and so the amount is “entirely at the discretion of the landlord”. Even with a specified fee, it’s not always clear what services are covered.

These fees have drawn criticism in the past, with the Office of Fair Trading condemning the exit fee model as “not optimal for consumers”. The Law Commission is currently waiting for a government response to its consultation on the subject. It acknowledges that exit fees might be a sensible way to defer service charges, but has recommended measures such as imposing a limit on the amount that can be charged, and generally requiring landlords to be far more transparent about the fees early in the purchase process. Meanwhile, read the small print, challenge anything you don’t understand, and be alert for any attempts to obfuscate the issue. Alternatively, find a provider (such as McCarthy & Stone) that avoids using such fees.

Finally, remember that when you come to sell your retirement property, it may take longer than for a traditional home, as your pool of potential buyers – other retirees – is smaller. You may have to keep paying ground rent while you find a buyer, even if you’ve moved out already (though some providers will waive these after a certain time has elapsed).