Retirement is a time when thoughts often turn to trying to make life easier, to downsize to reduce financial outgoings. So there is a strong attraction to moving into a housing development built specifically for older buyers. These may be houses, bungalows or in the case of Kathleen Whale, a 2 bedroom flat in Frinton-on-Sea, Essex.
Many retirement properties offer communal areas, and some have on-site facilities including gardens, a restaurant, library or swimming pool. Those with an on-site manager or care package offer added peace-of-mind. Typically, there is an age restriction and usually the purchased accommodation is leasehold with a management company managing the development, thereby removing another worry.
Buying and selling
Kathleen paid £215,000 in December 2018 for the leasehold of a flat in a 37-apartment development built by McCarthy Stone in 1998. Prior to Kathleen’s 2018 purchase, McCarthy Stone sold the development to Fairhold Homes (No 2) Limited, an investment company, which is fairly common practice.
Following Kathleen’s subsequent move to a nursing home in 2021, aged 97, the flat was put up for sale in March 2021 by her daughter, Deborah Whale for £225,000. The equity released would then pay for the nursing home fees. The price was gradually reduced until it was finally sold, over 3 years later, in July 2024 for £100,000 – a substantial loss.
The sums don’t add up
The average house price in Frinton-on-Sea is estimated to have increased by 15.36% over the past five years. And the average sale time to completion is around 82 days. Had Kathleen’s flat appreciated similarly it should have realised a sale price nearer £248,000.
From an investment point of view, this depreciation of retirement flats is not new. In 2017 the BBC reported that half of new-build retirement homes sold at a loss.
Another case from 2021 reports a flat purchased for £124,000 in 2006, put on the market eight years later, took seven years to sell and then realised only £60,000.
The reality of selling
To progress the Frinton sale, Deborah was asked to pay £1,000 “contingency fee” to the managing agents FirstPort Ltd, a £1,000 exit fee to E&M Ltd who collect the ground rent on behalf of the landlord plus a fee to FirstPort to provide a management pack for the purchaser. The standard fee is £415 including VAT. To prevent further delays Deborah paid £480.00 including VAT for an expedited pack.
During the 3 years the flat was empty, the service charges were paid depleting the last of Kathleen’s savings. The pro rata balance was required to be paid before FirstPort Ltd gave their approval for the sale.
A spokesperson for FirstPort told East Anglia Bylines: “Some leases for retirement properties require payment of transfer and/or contingency fees, also known as exit fees” and explained that detailed information on transfer fees is provided to both sellers and purchasers during the pre-sales conveyancing process. They also advised that a management pack is not compulsory but it assists “in the smooth transfer of a property.”
Annual service charges
Between 2018 and 2024 the service charge applied to the Frinton flat increased from £4,000 to £5,500, or 37.5%. This increase is more-or-less in line with TPI Service Charge Index – an industry response to concerns about rising service charge bills.
The Property Institute’s (TPI) explanation for service charges rising an average of 41% since 2019 is due to factors including “soaring costs” of labour and materials for repairs and maintenance, increased costs for insurance and energy, and the cost of implementing the new building safety regimes, particularly fire prevention-related.
This explanation is echoed by FirstPort who replied to our enquiries:
“We understand that these charges impact homeowners, and we only ever apply increases to meet rises in external costs. A number of factors have caused rises in service charges. General inflation, and tighter fire safety regimes in particular were key causes in this…. Where a family is struggling to pay the service charges for an empty property, we work with them to put a payment plan in place until the property is sold or reoccupied.”
‘Buyer beware‘
A retirement flat with or without a specialist care scheme can offer many retirees a happy future. Building maintenance is usually looked after. Living in a retirement community offers friendship, so avoiding loneliness. However the financial implications of a possible significant depreciation in value and large increases in service charges and ground rents must be recognised at the outset. Expectations of a quick sale may also prove unrealistic.
“The retirement housing model is completely broken”, says Deborah, “There is pressure on older people to move and free up their houses, but it’s not going to happen until there is better regulation in this area. This is a vulnerable group of people on a fixed income dealing with organisations whose primary concern is making a profit. The All Party Parliamentary Group looking at Leasehold and Commonhold Reform need to address the matter as quickly as possible.”
A recent case seems to illustrate Deborah’s point. At Oakfield Court in Trafford, the annual service charge rose by 15.9% to £11,000 when the TPI index suggests only an average 3% rise from 2023 to 2024.
Querying this, McCarthy Stone told East Anglia Bylines: “Service charges at housing with care schemes (which we call our Retirement Living PLUS model) are higher than a normal retirement living development or in mainstream housing, as they provide additional care and support services, a full service restaurant and commercial kitchen with a dedicated chef and team, plus access to a dedicated team that has a presence on-site 24 hours a day, 365 days a year. Oakfield Court has a team of around 15 people providing high-quality care and support.”
Their spokesperson explained that the primary reason for the rise is due to energy, food and staffing cost increases and said “Given the high level of support and care provided in a Retirement Living PLUS development, the closer cost comparison is to a care home. The typically costs of living in a care home is around £60,000 a year per person.”
McCarthy Stone added: “All charges are explained clearly to potential customers when buying a property and they are given updates regularly explaining changes to annual charges.”
What advice would Deborah give someone considering buying a retirement flat?
“Consider all possible alternatives first such as modifications to your existing home or assistance, as it may work out cheaper in the long run. If you have no other choice, find out who the managing agents of the particular development are and research them online – some are definitely better than others. Ask your solicitor to explain all the fees and costs, not just the annual service charges but any others that only bite on the sale or transfer of the property as these can have a significant impact.”
Deborah’s final advice is “expect service charges to rise” especially given concerns about the insurance market and anticipated increases in labour costs. And most importantly, until there is a more reliable market for second hand leasehold retirement flats, never regard the purchase as an investment.
The Leasehold Knowledge Partnership (LKP) is a registered charity which offers advice to help and protect ordinary leaseholders who get “caught up in the leasehold game”. Contact details for LKP.
Better Retirement Housing deals specifically with retirement housing issues. It is run by LKP. Contact details for help from Better Retirement Housing.
LKP is also the secretariat of the All Party Parliamentary Group on Leasehold and Commonhold Reform. This is chaired by the MPs Sir Peter Bottomley (Conservative), Justin Madders (Labour) and Sir Ed Davey (LibDem). They are also the patrons of LKP.
