Buying retirement property: Everything you need to know

Buying retirement property: Everything you need to know

 · 7 min read

If you are considering acquiring a traditional property in retirement or retirement property in a specialist housing complex, there are many issues of which you should be aware. Whether looking towards specialist mortgage funding or your rights within a specialist housing complex, you must research these issues before proceeding.

  • Whether looking at a traditional property or a retirement development, there are numerous options for those approaching and already in retirement.
  • Managed retirement complexes offer a degree of independent living within a community setting with an extensive support network.
  • It is essential to be clear about the current and future level of service charges and ground rent when looking to acquire leasehold retirement housing.
  • When acquiring property in later life, you should take legal and financial advice to ensure you make the right decision for your situation.
  • Buying a retirement property: FAQs

    • Is shared ownership an option with retirement developments?

      Many companies offer shared ownership within retirement developments for those with limited income and assets. Depending on your level of ownership, you may pay rent on the element of the property which the developer retains. There will also be service fees and other charges to take into consideration.

    • Do I have any protection against excessive service charges and ground rent?

      Recently we have seen the introduction of new rights for leaseholders exposed to high service charges. Legally these charges must not be excessive,and the leaseholder has the right to appeal to a tribunal. Ground rent is more straightforward and covered in the leasehold agreement. However, this may involve periodic increases, and you must take legal advice before committing yourself to a purchase.

    • Is there an upper age limit on mortgage finance?

      In theory, there is no upper age limit on mortgage finance, with some companies offering funding for those up to 80 years of age and beyond. However, whether you are 50 or 80 years of age, access to mortgage finance will depend on your income and assets. Consequently, it is vital to take professional financial advice to find the best arrangement for your situation.

    Whether looking at retirement apartments, retirement housing or traditional properties, it is vital to be aware of your rights and access to finance. Historically, access to mortgages after 50 was relatively sparse and uncompetitive. However, this sector and life expectancy have seen some dramatic changes in recent times. While many approaching retirement age have benefited from a buoyant UK property market, extended careers have also increased income and net wealth.

    We will now look at the two main types of retirement property, traditional homes and specialist retirement developments.

    The UK has an ageing population

    Before we look at the subject of retirement homes and retirement properties, it is crucial to be aware of the changing shape of the UK population. The below graphs illustrate the growing number of older people living well beyond traditional retirement dates in 1966, 2016 and projections for 2066. Consequently, it is not difficult to see why there has been a considerable increase in the number of properties purchased by those in retirement and new build retirement housing in specialist complexes.

    Source: ONS

    What is retirement property?

    In simple terms, retirement property is housing made available to those of a certain age, typically over 55. This type of retirement development can offer various property types, from flats to bungalows to traditional properties, offering varying levels of independence. You will often hear retirement developments called "retirement villages", which suggests a retirement community. There are several specialist retirement development companies in the UK, including McCarthy & Stone, seen by many as the leader, and Churchill Retirement Living. However, there's nothing stopping you from finding a home with a traditional high street estate agent, either!

    Leasehold properties

    The vast majority of retirement properties in the UK are sold on a leasehold basis. The lease can be anywhere from 99 to 999 years in duration. Whether buying a new property or an existing home, it is essential to be aware of the costs associated with leasehold properties.

    Service charge

    Under the terms of a leasehold property, you may be asked to pay a service charge – this is more relevant for retirement developments. It is perfectly legitimate for the freeholder to charge the leaseholder for an array of issues such as:

    • Cleaning of communal areas
    • Heating the building
    • Additional staff
    • Management company fees
    • Maintenance and repairs
    • Building insurance

    Service charges ensure that all of those in a particular development pay their fair share towards the upkeep of the building(s). It is important to note that the building insurance element only covers the freehold building containing the leasehold property. Consequently, this does not include contents insurance for your personal belongings.

    Ground rent

    The subject of ground rent has been a hot topic of late as it can increase to a significant amount over time. This payment is exactly what you would expect, a rent to the freeholder that owns the land on which the leasehold property is built. First, however, it is essential to be aware of the ground rent terms, which can begin at relatively low levels with some increasing (often doubling) every ten years or less. This may seem irrelevant, but even a modest £100 ground rent valuation that doubles every ten years would increase to £3200 per year after 50 years.

    This financial liability would pass to those who inherit your retirement home.

    Rising charges

    On occasion, this ongoing increase in ground rent (covered in the leasehold agreement) can be a challenging hurdle when looking to sell a property in the future. We also have the issue of rising service charges which can also increase significantly over time. There have been occasions where retirement properties left to beneficiaries on the owners' death have proved difficult, if not impossible, to sell, often resulting in an expensive financial liability. You must take advice on the leasehold agreement!

    Amending a leasehold agreement

    Many of those looking to acquire retirement homes within retirement developments will have previously held property under freehold ownership. This is very different to leasehold ownership, where the freeholder retains a degree of control over what you can do with your property. There is also the issue of the lease duration which will decrease annually. Thankfully, protection for leaseholders has changed dramatically in recent years, and they now have a legal right to extend the lease term.

    The remaining duration of the lease can significantly impact the resale value, and it is vital you take legal advice to protect your investment. For example, a leasehold property with a 99-year lease would be more valuable than the same property with a 69-year lease. There is a procedure to go through when extending the lease with costs incurred by the leaseholder.

    Retirement scheme management

    As we touched on above, most retirement housing developments will incorporate several communal services and areas. Even though these developments are built around the concept of independent living, the management company will often appoint a third party scheme manager or warden service. While it will differ from development to development, scheme management could take in any of the following services:

    • Emergency help or extra care
    • Emotional support for residents
    • Administrative duties
    • Housing management
    • On-site events
    • Out of hours cover
    • Advice and guidance on benefits and social care

    Those retirement schemes which do not have a scheme manager will have lower service charges, but there are obvious benefits with additional help. In recent times we have seen the creation of various associations to protect those living in retirement housing developments. These include the Associated Retirement Community Operators (ARCO) and Association of Retirement Housing Managers (ARHM).

    ARHM code of practice

    Those management organisations which are members of ARHM have a specific code of practice to which they must adhere. The broad code covers the following:-

    • Provision of services
    • Setting and collecting of service charges
    • Annual meeting with leaseholders
    • Encourage the setup of residents' associations

    One other element of the ARHM code of practice involves the "Leaseholder's Handbook", often referred to as a Purchase's Information Pack/Resident's Handbook. This handbook is available to all interested parties and, if requested, must be provided in advance of completion of a retirement housing purchase.

    The Leaseholder's Handbook is designed to give you all of the information relevant to a potential purchase but does not replace the leasehold agreement. The handbook should include:

    • Name and address of the landlord and management organisation
    • Services provided and the cost
    • Details of the scheme manager service
    • Information on reporting repairs and their completion
    • Legal and contractual rights of leaseholders
    • Resale procedure
    • Consultation and complaints procedures

    You must employ the services of a solicitor to look over and explain the leasehold agreement. For example, there may also be specific procedures or restrictions regarding the resale of leasehold property within retirement villages or retirement living developments. Issues such as these will be explained in the handbook. You must be aware of any legally binding procedures that must be followed when looking to sell your property.

    Buying a home in later life

    Whether looking to downsize or acquire a family home in later life, there are still the traditional options outside of specialised retirement developments. You may be looking at relocating your family home or acquiring a two-bedroom apartment that is more manageable and less expensive. Even though there have been developments concerning mortgage finance for older homeowners, there are still some issues to be aware of, such as:-

    Mortgages for over 50s

    Due to improved life expectancy and extended working lives, there have been significant positive developments in the mortgage market for over 50s. As a result, competition in this area has increased, with many attractive deals available.

    Affordability test

    While you will still need to pass the affordability test, a mixture of equity on a previous home, pension income, and extended working life will help. Many older homeowners have benefited from the surge in UK property prices since the 1960s.

    Tax planning

    If you're looking to acquire a new home in later life, this could be the perfect time to revisit your tax planning. Your financial requirements pre and post-retirement will be very different, and it is essential to plan as much as possible. For example, you may need to consider the potential cost of care homes going forward and how this might impact the value of your estate.

    Know your options when buying retirement property

    Whether looking at leasehold, freehold, retirement housing or a traditional home, you must know your options before signing any agreement. Even though we have seen positive developments regarding leasehold properties, there are still many costs and conditions you should be aware of.

    While interest continues to grow in retirement villages and similar specialised developments, this type of independent living is not for everybody. This has prompted significant investment in mortgage finance for the over 50s, with many people looking at new properties and retaining their independence. Whatever your preference, it is vital that you take professional financial advice every step of the way. Even if just for your peace of mind!

    Mark Benson
    Mark Benson
    Mark joined Pension Times in 2020 and has over 10 years’ experience specialising in writing around property, finance, and investment subjects.
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