Martin Whitehorn considers what to look out for when buying a retirement home.
The problem
The Guardian recently reported on the difficulties of selling retirement homes in its article “My flat was £161,950 in 2007 – now I’m offered just £28,000”. In the interview with Tony Cross, the key barriers to selling his deceased father’s flat were the high cost of the service charge, at £562 a month, and the ground rent, at £415. This amounted to £7,159 a year, which can be difficult for prospective buyers to fund from their pensions, in addition to the costs of looking after oneself.
I will now explore these and other issues to let you know some of the matters to seriously consider when buying a retirement home. These can affect not only you, but also whoever comes to sell the property following your death.
Martin Whitehorn
Trainee solicitor
Ground rent
Retirement homes tend to be leasehold properties. As you are buying a lease and do not own the property outright, there are restrictions on what you are permitted to do with the property, along with additional costs including an annual ground rent. Under current law this should ideally not increase beyond £250 (or £1,000 in London), otherwise the landlord gains wider powers to terminate the lease and take possession of the property should you fail to pay the ground rent under the terms of the lease.
This power can be of great concern to buyers, particularly if they are at risk of debilitating conditions that would affect their ability to pay this rent year on year. Ground rents can be increased beyond £250 and it is worth checking how often and by how much your ground rent can escalate.
While most people who move into a retirement property do not require a mortgage, it is worth noting that those buyers who do are unlikely to be lent money by their mortgage lender if the ground rent is high or due to substantially increase.
Service charge
Whether buying a leasehold or freehold retirement home, such properties come with service charges to pay for a variety of services including the cleaning, repair and maintenance of the communal areas.
You should consider whether you can afford to continue to live in your retirement home in the event the service charge increases. Service charges in retirement dwellings tend to already be higher than those in similar leasehold properties, due to the costs of staff and facilities to cater to the needs of the residents.
The landlord and its property managers are only required to provide the services specified in the lease. One common exception is that you will usually be personally responsible for paying for the maintenance and repair of the inside of your retirement home. Your service charge may not include your water and energy bills apart from those for communal areas. Similarly, the service charge may include buildings insurance, but not contents insurance for your possessions or council tax.
Purchase price
You may be attracted by the prospect of a new build property. Some clients do not realise that these homes come at a premium due to having been recently built, usually being more expensive than similar properties.
Are there any other fees I should be aware of?
Some leases on retirement homes may require an additional fee to be paid to the landlord in certain circumstances, most commonly when the property is sold, but also upon change of occupancy, for example if a new partner or carer moves into the property with you. These fees are commonly known as ‘transfer’ ‘event’ or ‘exit’ fees.
Can I use my own solicitor?
There should be no restrictions on your using your own solicitor. Estate agents may suggest you use the lawyers they endorse, but you should check whether these solicitors have paid any fee to the estate agent in return for this recommendation.
Julie West Solicitors is proud not to pay such referral fees to estate agents or property developers in return for clients, as this arrangement can lead to prioritising the sale of the property over your own interests. It is vital that your solicitor advises you on what can affect your enjoyment of your new home. We are dedicated to providing independent advice that puts your best interests first.