Ever imagined where you might live in later life?
I don’t mean a ‘roses round the door’ kind of chocolate box cottage, but the kind of place where you (or maybe your parents) could live independently, with just a bit of support?
I’ve been musing over the issue while writing my latest article for the Sunday Times, published today, about buying new-build retirement homes. Think sheltered housing – where you have your own flat, but there’s a communal lounge to meet up with other oldies, a warden on call if needed, alarms to call for help and other support.
(Check out the full article here)
The article focuses on a particular example, where a brand-new retirement flat is now being resold for a lot less money, and the family are still having to pay thousands of pounds a year in service charges for an empty flat.
Turns out that quite a lot of brand spanking new retirement properties do drop in value, so I talked to various experts about the reasons why. Some reasons were practical, some rather sad, and some made me think ‘huh, I see now’. So in case it’s any help to people thinking of buying somewhere similar, here’s why.
Why do new-build retirement homes (sometimes) sell for less?
New build premium
First, for any new-build property, there’s a premium on being the first owner. One expert referred to it as the “new carpet, new paint” factor. People buying in a modern block like the idea of a brand new flat, rather than buying it second or third hand. It’s bit like buying a brand-new car (and I’ve written in the past about car financing and how the value of a new car plummets as soon as you drive it off the forecourt)
But then there’s an extra premium for new-build retirement properties in particular:
No extra work
- The buyers are usually in their late 70s or early 80s, and Adam Hillier from the charity Early Accommodation Counsel pointed out that they don’t want to worry about redecorating or refitting bathrooms or kitchens. Heck, if you buy off plan, you might even get to choose some of the colours and finishes without the hassle of organising any of the work yourself.
Joining a community at the start
- A major benefit of retirement properties is the sense of community – having like-minded company around during the day. Sebastian O’Kelly from the campaign group Better Retirement Housing explained it is easier to form a community, if everyone was buying into a new development at the same time, rather than joining an established group several years later.
Paying more to buy in a hurry
- O’Kelly also pointed out that often people are buying in a hurry, due to a family crisis or a partner dying – so might pay a higher price.
Accepting less to sell in a hurry
- Similarly, O’Kelly pointed out that family might be in a hurry to sell, due to mounting service charges and other costs – so might settle for lower price.
No previous occupant
- This is the saddest reason. People saying that they don’t want to buy a flat where someone else had died.
No fancy marketing suite
- New developments often have big bill boards, a fancy marketing suite and glamorous show flats. By the time a brand-new flat is being resold, 7 or 8 years down the line, that marketing suite is long gone.
- With a brand new flat, the developer is often willing to offer generous incentives to get buyers to sign on the dotted line – covering legal fees, stumping up for mortgage arrangement fees, chucking in free carpets or kitchens, paying stamp duty, even offering part exchange on a previous property. These incentives effectively lower the purchase price of a shiny new flat. But anyone reselling a property probably isn’t going to offer the same benefits.
Less expertise in marketing
- High street estate agents might be less familiar with the benefits of a retirement flat – the peace of mind from having a warden around, comfort and community from the other residents, support to keep living independently for longer. Both the experts and housing developers recommended using an agency that specialises in reselling retirement housing, such as RetirementMove.
Issues with short leases
- In the past, many retirement flats were sold with short leases – say 125 years. After two or three owners, the lease has dropped to under a 100 years, and any new buyer is facing the effort and expense of extending it. Many more recent flats are now sold with 999 years leases, but suspect this will continue to be an issue with older properties.
Issues with maintenance
- Again, this might not be a problem with newer flats, but in the past many developers built the properties and then handed them on to different managing agents. If the agent didn’t invest enough in maintaing the building, looking after the gardens and redecorating communal areas, it could all look a bit tired to future buyers.
Rising ground rent
- Ever been a leaseholder, and had to pay ground rent to the freeholder? It’s just a payment to the freeholder, you don’t get anything in return. Some of the leases have clauses about rising ground rent, where for example if might be £450 a year, set for 15 years. Sounds good? Problem arises after 15 years, if for example the lease says that ground rent then shoots up by inflation over all that time. So the ground rent might seem reasonable to the first buyer – but a lot more chunky to a future buyer.
Strikes me that other financial issues with retirement properties arise whether they are brand new or not. Some are built with very limited parking. Most will have higher service charges than on ordinary flats – if you think about it, the service charges need to cover not just building and garden maintenance, insurance, heating and decor for communal areas, but also for example paying for that site manager and the alarm systems. Those costs don’t go away just because someone is no longer living in a flat, so yes they still have to be paid right up until the place is sold.
Some flats have hefty exit fees built in, so that when a flat is resold in future, a percentage of the price must be paid back to the developer. The justification for exit fees seems to be that the developer provides peace of mind that service charges won’t spiral, and potentially subsidises meals and care. In return, however, they want their money back afterwards, as a chunk of the selling price.
Benefits beyond the financial
I do believe that the contracts and costs for many more recent retirement properties have improved. However, it will always be worth checking the conditions about service charges, ground rent, exit fees and leases, to understand what they are now and how they will change in future.
Where the experts and developers agreed was that retirement properties have a value beyond anything purely financial. In providing support and company, they can help older people live independently for longer, without the physical and mental illnesses exacerbated by social isolation. I co-hosted a podcast with Martin Bamford from Informed Choice Radio recently, about the staggering cost of long term care fees when it’s no longer possible to live at home. If in future a retirement flat might help me live in my own place for longer, I’m all in favour – but I’ll still be checking the small print. And maybe, if I want to leave anything for my own children, I’ll be looking at renting one instead.