Retirement Housing Reform: Beyond the Sales Brochure

Retirement housing has been left un-regulated for too long. Homeowners deserve a better deal.

Over the last decade here at the HomeOwners Alliance we’ve had a steady stream of unhappy homeowners and their grown children dealing with retirement property problems. This is why we are launching a campaign for Retirement Housing Reform. There is no question that we need more retirement housing options in the UK. According to Our Future Homes, we need an estimated 30-50k new later living homes a year – but only build around 7,000 a year. At the same time, we need to ensure the developments we are building work for the homeowners.

We aren’t alone in calling for reform. The excellent work by Martin Boyd and Sebastian O’Kelly at the Leasehold Knowledge Partnership has long campaigned on this issue.

What is a Retirement Property?

These properties are housing developments built specifically for older buyers. They can be houses and bungalows but are mainly flats. These retirement properties come with different facilities. Some are simple flats with a shared garden and entranceway, others offer more such as an on-site manager, communal areas like a shared restaurant and a 24/7 on-call alarm, while at the higher end facilities can include restaurants, libraries, hair-dressers, swimming pools and gyms. 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’s the Problem?

There are a number of problems for people who own retirement flats and their families when they inherit them: 

1. Appalling Wealth Erosion and Problems Reselling 

Retirement properties can be notoriously difficult to sell – often taking years – and causing significant distress for owners and their families. But even more troubling is the steep erosion in resale value that many owners face.

A quick Google search – or our own guide, Why are retirement flats not selling? – reveals just how widespread the problem is. Recent research by the Leasehold Knowledge Partnership and The Times found that three-quarters of Churchill retirement flats sold for far less than their purchase price.

And selling them can take an age. According to Age UK, there are 150,000 retirement properties in England that are vacant, mainly due to inheritance complications or poor resale prospects. Buyers are rarely made aware of the poor resale prospects. And ongoing service charges and council tax compounds the financial burden and stress levels for those managing the estate after death.

“My mum lived in her McCarthy and Stone new build property for only 1 year before dying suddenly. It took over 6 years to sell her flat… we ran up over £60,000 in service fees on an empty flat, plus ground rent and council tax. We sold for 50% of her original purchase price. In all, we lost over £200,000 of her estate.” – Claire, via comments on this site

2. High, Unaccountable Exit or Event Fees

Exit or event fees require you to pay a percentage of your property’s value when you sell or sublet your retirement property and they vary widely, from 1% right up to 35%. For example, this Mayfield Watford Retirement Village charges a ‘deferred management charge’ of up to 30% of the final achieved sale price (or open market value, whichever is greater). 

We understand this is a funding model widely adopted in the sector. And we need alternative funding models if we’re going to meet the housing need in this country. But where fees are going to be so high, they need to be designated to a much greater degree. There needs to be a clear explanation of where the money is going.

Will exit fees be ring fenced and used only to maintain the development? If so, what is the schedule of work due? And does this mean service charges will be lower? What percentage is the developer taking for administration or profit? While some developers are clear that contingency fees will only be used to maintain the development, and some other developers admit they take some of the deferred charge as profit, the allocation of funds is certainly not currently transparent.  

With retirement properties charging such high fees, you are essentially agreeing to hand over a proportion of the equity in your home up front. This has some parallels with equity release. But unlike equity release, these deferred fees are not regulated.

As these unregulated fees can vary widely and are not included in the property listing, it’s our view that consumers are being left unprotected, are unable to compare properties easily, and are vulnerable to long-term financial loss.

 3. High, Unaccountable Service Charges

Service charges are to be expected to maintain communal areas in leasehold properties. And for properties offering a wider range of facilities you would expect to pay more. Our concerns are around:

• A lack of upfront material information We’ve seen numerous cases where the amount of service charge is not clear on the property listing. For example, this Churchill Living development in Shropshire doesn’t state how much service charge is on its website, nor does this Inspired Villages development in Kent. 
• High and increasing service charges in retirement developments can be extremely expensive and can increase substantially over time. It’s widely acknowledged that leasehold owners need more transparency and stronger rights when it comes to service charges which is being tackled in the implementation of the Leasehold and Reform Act.  But we do not think it’s right for older owners to have to proactively challenge and battle unreasonable unreasonable charges at the First Property Tribunal.
• Evidence of how service charges are spent. There are a lot of complaints on our site that residents do not see evidence of how their service charges are being spent. 
• Service charges payable after vacating property/death – service charges continue to be payable after the owner dies or moves into long term care. We find this shocking and in stark contrast to equity release where for example, more compassionate terms are often offered on loan repayments after death/moving on. 

 “We believed (why wouldn’t we?) that the bulk purchasing-power of the management company would result in lower electricity and insurance charges… In reality, obscure commissions resulted in HIGHER charges. These have been successfully challenged in tribunals, when residents have worked hard to expose them.” – Valpy, via HOA comments

4. Inadequate Consumer Protection and Redress

There is no easy route for residents to challenge unfair terms, escalating costs, or poor property management.

Currently residents can challenge service charges through the First Property Tribunal. Although things could change if the government chooses to grant an exemption to retirement providers as set out in their latest consultation, Strengthening leaseholder protections over charges and services. The consultation suggests that retirement providers who charge fixed service charges or event fees should not be required to set up a reserve fund or produce an Asset Management Plan, which assesses the condition of the property and includes a costed forecast of future repairs and maintenance. The consultation also suggests that leaseholders with fixed service charges should not have the right to challenge their reasonableness at the First Property Tribunal.  Our view is that there should be no exemptions for retirement providers. 

“People who don’t want the trouble of managing their own properties anymore have identified themselves as ripe for the pickings.” – Valpy, via HOA comments

Our Recommendations for Change

1. Better sales prospects and a compassionate approach

We often see grieving families inheriting homes they can’t sell, can’t live in and can’t afford. The financial burden and stress is unacceptable.

Housing providers need to take a share of the risk when owners find themselves struggling to sell. At the moment they have no interest in the resell process. They are continuing to collect service charges for services that aren’t being used. We think this is wrong. 

2. Fairer fees and charges

We would like to see an industry wide approach that more clearly sets out fees and what is being charged at every stage of the process. It is all too ambiguous at present.

The Association of Retirement Housing Managers (ARHM) already advises that managers should make clear to leaseholders, and prospective purchasers, whether or not a given event fee is payable simply as a consequence of an assignment or surrender and is not related to the provision of any services. For example, contingency fees will usually be related to the provision of services but transfer fees may not.

While ARCO says:  (Section 13) If any event fee applies, we will: (a) Provide information on the amount of the fee. (b) Provide information on how and when the fee is payable. (c) Explain how the fee is calculated and provide realistic worked examples of the financial impact of any event fee, clearly stating the assumptions behind the examples and all relevant thresholds. (d) Disclose what percentage of the fee goes into a sinking fund, if any. (e) Disclose what, if anything, the customer will receive for the fee. (f) Disclose who will receive the fee. (g) Disclose whether any element of the fee will be held in trust. 

3. Regulation and Reform

Ultimately we want to see the leasehold system abolished. But as we slowly transfer to a new tenure system, it’s critical that retirement properties are included in leasehold reforms. Having a different approach for retirement properties opens a door to developers to introduce sharp practices and set charges too high for a vulnerable sector of society.

We would also like to see the retirement property industry properly regulated. This would have two major benefits. First of all it would build trust in a sector which is increasingly called into question by those exploring later living options. Lack of transparent fees, difficulty in reselling and opaque service charges are all increasingly common stories in the press. Regulation could help protect vulnerable homeowners while also building trust in the sector and spurring demand for retirement properties.

Equity release, for example, serves as a compelling parallel for how robust regulation and clear consumer standards can rehabilitate a sector’s reputation. Once marred by a chequered history, the industry faced significant trust issues due to past mis-selling and negative equity concerns. However, the sector has undergone a transformation. The introduction of stringent standards by the Equity Release Council – such as mandatory independent legal advice – has been instrumental in this turnaround. 

With equity release, there are FCA rules on what advisers must do before recommending a product and what information you must be given to help you reach a decision. Under these rules, a firm advising you about an equity release product must take reasonable steps to ensure it is suitable. Also, FCA authorisation means you are protected if you receive bad advice. 

Share your story with us in the comments below or email us on hello@hoa.org.uk

Read our related guides:

• Hidden Costs of Retirement Housing
• Retirement Villages Compared
• Why Retirement Flats Don’t Sell