Hidden costs of retirement properties
Buying a house or flat in a retirement village has its appeal, including an array of services on site. But before jumping in, make sure you know about all the hidden costs of retirement properties you may need to pay.
Hidden costs of retirement properties summarised
All the benefits aside, it’s important potential buyers fully understand the costs which include:
- Expensive fees if you sell or sublet
- Poor resale value
- High ground rent
- Steep service charges, even when unoccupied
- High purchase price
- Expensive lease extensions
- Lease restrictions
What are retirement properties?
Retirement properties are housing developments built specifically for older buyers. They can be houses, flats and bungalows. Retirement properties often come with communal areas and on-site amenities such as a communal garden, restaurants, libraries, swimming pools and an on-site manager. These properties are usually only on offer to the over 55s, although some are only available to those over 60 or over 70. Retirement properties are usually leasehold.
What are the pros and cons of retirement flats in the UK? We take a look.
What are the hidden costs of retirement properties?
The benefits of retirement properties can come at a high price:
1. Expensive fees if you sell or sublet
Some retirement property leases require you to pay an ‘exit fee’, also known as transfer fees, event fees or departure fees, when the property is sold or sub-let. But you may also need to pay it if there is a change in who lives there, for example if a relative, new partner or carer moves in.
These fees can be high and critics argue there is often a lack of transparency regarding how these figures are calculated.
How much do exit fees cost?
Exit fees of 1% or 2% of the sale price are common, although exit fees tend to average around 12%, according to the Leasehold Knowledge Partnership. However some schemes charge up to 30%. Whether or not these are technically hidden costs of retirement properties may be up for debate as this information should be provided to you.
But knowing that you’ll be charged an exit fee doesn’t mean the bill will be any lower. For example, Riverstone Living, which runs luxury developments in Fulham and Kensington in West London, explains in its fee structure on its website that it charges a ‘Deferred fee’ of up to 28% of the sale price when the property is sold. It says this Deferred fee will cover things like ‘cost of major capital works, refurbishment and improvements to the buildings and amenities at our Riverstone locations’. However it also states the company will keep part of the Deferred Fee as ‘a return on our investment’.
Get more details about the charges you will have to pay and the restrictions on you in our guide Retirement villages compared which takes a sample of developments from across the UK in 2024.
You might be wondering how these high fees are allowed. No, we don’t know either. There is some guidance about how the fees are communicated. According to the Associated Retirement Community Operators (ARCO) Consumer Code, buyers must be informed about any transfer fees payable as soon as possible after expressing an interest in a property. Buyers must be given information including how much the fee is and when it is payable and how the transfer fee is calculated, with worked examples.
However, while the codes offer some protection against unfair or hidden fees, the lease will dictate if an exit fee is payable and how it is calculated. Unlike service charges, these fees cannot be challenged by long leaseholders at a First Tier Tribunal (read on for more on this).
So make sure you do your research on potential fees, when you or your family may pay them and how much they will amount to.
It’s vital to use a conveyancing solicitor who specialises in buying retirement properties. Read our guide on How to choose a conveyancer.
Get instant quotes from regulated and reviewed conveyancing solicitors that cover your area.
McCarthy and Stone exit fees
The fees that apply when living in your retirement property may differ from developer to developer. For example, while retirement village developer McCarthy Stone says it is doesn’t ‘charge exit fees for profit’, it does however charge a 1% sinking fund contribution (known as the contingency fee), on the resale price of the apartment when it is sold. And if you rent out your home, the subletting contingency fee is 1% of the yearly rent in most cases.
The developer says the contingency fee is included in the service charge to cover planned maintenance and renewals in the future, such as decorating and replacement of windows. And that it tries to “keep this cost to a minimum by adding to the fund” when your home is sold or sub-let.
But this could be a significant sum. For example, if you sell your property for £400,000, a 1% charge on this is £4,000.
2. Poor resale value of retirement homes
Poor resale value should be considered as one of the hidden costs of retirement properties. According to research by the Elderly Accommodation Counsel around half of new build retirement homes sold during a 10-year period were later resold at a loss.
And we’ve read some horror stories of buyers seeing the value of their retirement home selling at a fraction of what they bought it for. For example, in one reported case someone bought a retirement flat for £124,000 in 2006 and died 8 years later in 2014. It took 7 years for the flat to sell, during which time the deceased lady’s family had to pay almost £16,000 in council tax, service charges and ground rent. And it sold for just £60,000 in 2021.
So before buying make sure you check the resale value of similar properties in your location and of other properties by your chosen developer.
3. Will you be stung by ground rent?
New retirement homes should not have an annual ground rent, under rules that came into force in England and Wales in April 2023. (This rule came into effect for other property types from June 2022).
However, resales are likely to come with ground rent of between £425 to £500 a year, and there may be threat of eviction if you miss payments.
So make sure your conveyancing solicitor examines the contract carefully. If the ground rent is too high not only will this be another cost to pay but the property could be difficult to sell too.
Get instant quotes from regulated and reviewed conveyancing solicitors that cover your area.
4. Retirement village service charges
Retirement village service charges cover things like the upkeep of and utility bills for communal areas, the services of a house manager or caretaker, cleaning costs, building maintenance and repairs. The average weekly service charge for a retirement property is £120.93, while the average monthly service charge is £523.99, according to website Lottie, based on retirement properties it lists.
But this is just an average: these charges can be from a couple of hundred pounds per month to over £1,000 depending on the development.
Get more details about the charges you will have to pay and the restrictions on you in our guide Retirement villages compared which takes a sample of developments from across the UK in 2024.
But note, one of the biggest complaints regarding leasehold properties is that service charges are often opaque so they are hard to budget for – and therefore seen as one of the hidden costs of retirement properties. You can challenge service charges – find out how in our guide Leasehold property: service charge problems. But this can be time-consuming and stressful, so something you’ll want to avoid. So it’s vital to do your research carefully. You should:
- Ask how much the service charge is and what it pays for, look at previous years’ charges to see how much it has increased and how quickly and understand how future years ground rent will be calculated.
- Research the management company that runs these services to see if they have had any bad press.
- Make sure to check if they’re a member of a recognised trade body like the Association of Retirement Housing Managers or the Association of Residential Managing Agents.
And bear in mind it can take months or even years for retirement properties to sell in some areas. During this period, service charges are typically payable, even if the flat is unoccupied. This could amount to tens of thousands of pounds.
5. High purchase prices
Another of the hidden costs of retirement properties is the high price you’ll pay to buy them. Buyers spend 17% more for new build retirement properties than for standard new builds in the same market, according to Savills.
This is partly down to the new build premium (ie the fact you pay more for a new unused house, just as you would for a new car straight off the production line). But retirement properties can be even more expensive than a usual new build because of the ‘luxury lifestyle’ some of them offer. Essentially, retirement flats will cost more than buying a similar sized property nearby.
You are very likely to save money if instead you buy an existing flat or house nearby. It’s certainly worth researching properties around the corner from the newly developed retirement flat that has caught your eye, to ensure you’re getting value for money.
6. Extending the lease
Retirement properties are usually sold as leaseholds. According to Age UK most leasehold retirement properties now come with 999 year leases, which removes some of the concerns over having to undertake costly lease extensions in many cases. However, this isn’t always the case so pay close attention to the length of the lease. Anything below 90 years is considered a short lease and you should avoid.
Having a short lease can make it difficult to sell and extending a short lease can also be expensive – making this one of the hidden costs of retirement properties. The Leasehold and Freehold Reform Bill aims to make it cheaper and easier to extend your lease or buy the freehold for existing leaseholders in houses and flats. Although until that becomes law, the current lease extension process will remain in place.
7. Conveyancing costs
Beware of not getting a good deal on your conveyancing solicitor. If the retirement village developer offers to pay the cost of your legal fees (usually up to a fixed amount) think twice before doing so. Requiring or putting pressure on you to use their in-house or recommended solicitor is illegal. At HomeOwners Alliance we highlighted this issue for people buying a new build property in our guide Do I need to use my developer’s solicitor when buying a new build? And it’s the same principle.
When you’re buying a property you’re paying hundreds of thousands of pounds, you’ll want to be confident that you’ve found the best person for the job and that they are working only in your interests.
8. Lease restrictions
Make sure you check any lease restrictions carefully. For example, some leases don’t allow pets or subletting. By not allowing subletting, this is one of the hidden costs of retirement properties, especially if you have to pay service charge when the property is empty. Also, they usually have minimum age requirements, which might vary from 55 to 70. This is worth considering if a relative plans to move in at a later date.
Retirement villages – what else to consider
As well as the hidden costs of retirement properties, you should also consider:
- Whether it accommodate your specific health needs: None of us know what the future holds. But you should consider what will happen if your health needs change and you need a carer. While some retirement villages offer this, others don’t and you’ll need to consider how you’ll cope with this and whether your facility – and your finances – will be able to accommodate you.
- Will you really like it? While most people couldn’t argue with luxury facilities and having everything they need a stone’s throw away, retirement villages aren’t for everyone. For some, the space offered in some of these new developments is too tight and the idea of living with one sector of society is an odd concept.
How much does a retirement home cost?
The average cost of a one bedroom retirement home in London is £708,200, according to directory Lottie based on the average prices of properties listed on its site, with a two-bedroom retirement property costing around £800,000. While in the North of England, the average cost of buying a one bedroom retirement apartment is £215,922, with a two bedroom apartment costing £304,135 on average. However, the cost will vary by location and by developer.
What are the benefits of retirement villages?
Benefits of retirement villages include:
- Buyers tend to feel safer living in such a complex than they would living alone
- Most maintenance and repairs are dealt with by the developer (at a cost)
- Most retirement villages offer care and support for those who need extra help, with options including onsite care services or assisted living apartments, allowing you to maintain your independence whilst still having access to the care you need.
Are retirement villages a good idea?
Whether or not a retirement village is a good idea for you depends on a lot of different factors, not the hidden costs of retirement properties.
Many villages look very appealing and you may get wowed by the marketing brochures and sales pitch. But our key message is to do your research independently so that you know exactly what you’re signing up for. You may decide that even with high costs, a retirement village is a good idea – or not.
Who are the main retirement property developers?
The biggest private retirement home builders are:
- McCarthy Stone
- Churchill Retirement Living
- Guild Living
- Inspired Villages
- Audley Retirement
- Anchor Hanover
How do you find a retirement property?
If you want to buy a retirement property you’ll often find them advertised on property websites like Rightmove or Zoopla. Or you can try a developer directly.
Please tell us what you think
We first wrote this article in 2018 and were surprised then by the outright cost of buying a retirement flat. Since then, the more hidden costs seem to have increased. We’ve got more research to do so we can bring you further information and insight on this topic, but in the meantime do let us know your experiences with retirement properties, good and bad, in the comments box below.
