What you should know before you buy a retirement home

Finding the right retirement property

As you get older, you may find your housing needs changing. Maybe you bought a house years ago to accommodate children who have since flown the nest, and now you find yourself rattling around in a property that is much bigger than you need. The upkeep and bills for a large house can start to feel like a burden when it’s just you living there.

In situations like these, the idea of moving to a retirement community can seem very appealing. Retirement homes promise low-maintenance living, a ready-made social circle, and a lifestyle tailored to your stage of life. However, retirement housing is not without its pitfalls, with some experts saying it could be “the worst investment” you ever make.

Finding a retirement home isn’t too different from finding a typical home. New developments are often advertised on major property websites such as Zoopla or Rightmove. You can also contact one of the major retirement home developers like McCarthy Stone, Churchill Retirement Living, Guild Living or Anchor Hanover directly.

The Elderly Accommodation Counsel charity also has an online directory of specialist retirement housing across the UK which can be a useful research tool. You can search their database by location to find retirement communities and housing options for older people in your desired area.

To be eligible to live in most retirement housing, you typically need to be over 55 or 60 years old. You may also need to provide a doctor’s letter confirming you are able to live independently, as retirement communities do not provide high levels of care like a nursing home would.

Buying vs renting a retirement property

The vast majority of retirement homes in the UK are sold on a leasehold basis. There have long been concerns that retirement properties make poor investments for buyers, because their resale values often fall over time. This is especially true for newer retirement properties. It’s not unusual to see retirement flats lose 30% or more of their value within the first 10 years.

For this reason, it’s worth considering whether renting a retirement property may actually be a better option than buying. Renting requires less upfront capital, and while it doesn’t offer the security of owning your own home, it does avoid the risk of negative equity further down the line.

If you do opt to purchase a retirement property, looking at resale homes rather than brand new ones will often get you a better deal. However, as with any property transaction, there is usually room to negotiate on the asking price. Retirement home developers can be reluctant to cut the headline price on new-builds, but may offer incentives like paying your stamp duty or legal fees, or throwing in extras like higher-spec kitchens or carpets.

It’s a good idea to check the sale prices achieved for similar retirement properties in the area on sites like Zoopla and Rightmove. This will give you a benchmark to inform your negotiations.

Understanding the costs

Service charges in retirement housing tend to be much higher than for regular flats or apartments. It’s not unusual for annual service charges to run into the thousands of pounds per year, sometimes as high as £10,000.

This is because retirement communities come with a lot of extra facilities and services, such as staff on-site, communal lounges and activities, guest suites, 24-hour emergency call systems, and more. However, if you know you won’t make much use of these kind of amenities, you may feel like you’re overpaying. In that case, it can be worth looking for a development with fewer extras that may charge lower service fees.

Opting for a retirement property run by a not-for-profit housing provider can also help avoid unexpectedly high costs. Charities like the ExtraCare Trust and Methodist Housing Association have excellent reputations for providing good service while keeping costs reasonable. Speak to residents at any community you’re considering to find out what the charges are like in reality.

It’s also wise to inquire about upcoming maintenance works or repairs that could impact service charges in the next few years, as well as checking how much money is set aside in the development’s contingency fund. If the roof needs replacing in the near future but there are not sufficient reserves, residents may get hit with a sudden increase in fees to cover the shortfall.

When buying a retirement property, your solicitor should scrutinise the small print of any contracts closely, and keep an eye out for potential pitfalls like high ground rents. Typically lenders limit ground rents to no more than 0.1% of the property’s value; any higher could make getting a mortgage difficult or put off future buyers.

Avoiding problems for your relatives

One major downside of retirement housing is that some flats can take many months or even years to sell after the owner passes away. However, service charges will continue accruing even while the property sits empty waiting for a buyer. This means inheritors can be left footing big bills they didn’t anticipate.

To avoid this situation, some not-for-profit housing associations offer buy-back guarantees on their retirement properties. For example, the ExtraCare Charitable Trust will repurchase homes at 95% of the original purchase price. This helps ensure your loved ones are not left out of pocket if there is a delay selling the flat.

It’s also crucial to pay close attention to the length remaining on the lease. Leases below 80 years are considered short, and can hamper sales because most lenders are unwilling to grant mortgages on properties with short leases. Furthermore, extending a short lease can be an expensive and laborious process. Don’t overlook the lease term, even if you expect a relatively short remaining lifespan – think about protecting the asset for your heirs.

Questions to ask

When viewing retirement communities, make sure to speak with residents to find out what day-to-day life is really like there. Get a sense of the management, maintenance, and social atmosphere. Ask about service charges and whether significant increases have happened in recent years.

Find out what costs and terms would apply if you wanted to rent out your property – there may be fees and conditions attached. Also inquire about any fees that apply when the home is sold. Exit fees are common and help pay for communal facilities, but percentage charged can vary considerably across providers.

Key takeaways

– Consider renting instead of buying to avoid concerns about property values falling
– Opt for resale over new-build to get more value for money
– Scrutinise service charges carefully – speak to residents to get the inside view
– Watch out for short leases and seek buy-back guarantees to protect inheritors
– Negotiate on price and ask about incentives developers may be willing to offer

Taking the time to do your research is key to finding a retirement property that suits your needs and avoids any costly surprises down the line.