The uneasy truth about retirement homes

A Tory grandee decided to join the campaign that brings awareness to the problem of the resale value for the retirement houses that were newly build. The Campaign Against Retirement Leasehold Exploitation (Carlex) members think that the people who own such a property may suffer from major losses up to 40% on the selling price.

There are indeed cases when homeowners can’t sell their flats and houses without troubles. There’s a vivid example: Cherry Whitehead (East Grinstead, West Sussex) couldn’t sell the home she got as an inheritance from her mother. The latter has passed away in 2014, and since that time Ms Whitehead was to pay terrible charges every year – a service fee of 2,100 and ground rent of 192.

In 2005, when her mother turned 80, she decided to exchange the house in East Grinstead for a retirement flat at McCarthy & Stone situated not far from the former living place. The two homes were judged to be worth about the same, 163,950, although McCarthy & Stone returned 5,000 to Mrs Ward.

Last week Ms Whitehead accepted an offer of 141,00 for the property, representing a fall in value of 14 per cent. There is also the absence of capital growth. “Selling it has been an incredible stress – it got too much for Cherry, so I’m handling it,” says Arthur Mather, Ms Whitehead’s fiancé. “When we do sell, we will have to pay 1 per cent of the sale price to a contingency fund, as well as 1 per cent to the holding company. In hindsight, I think exchanging the properties was an unreasonable deal – the two-bedroom house hasn’t been sold since, so I can only assume that it has been kept or rented out. I have written to McCarthy & Stone about the resale value, but they have not got back to me. We feel ripped off.”

Sir Peter Bottomley, the MP for Worthing West, says: “People who buy retirement properties should expect that they will hold their value; too often this is not the case.”

We will have to pay 1 per cent of the sale price to a contingency fund, as well as 1 per cent to the holding companyArthur Mather

Carlex this week published research based on Land Registry figures that gives examples of the poor resale values that people are experiencing from seven retirement property providers. It looked at the sales history of 23 properties within McCarthy & Stone developments. The biggest loss was experienced by the owners of a flat within the Risingholme Court development in Heathfield, East Sussex. They experienced a fall of 164,188 over seven years (down from 225,688 when bought in April 2008 to 61,500 when sold in November last year). The fall is out of step with the local market.

The Carlex data also looked at the resale values for Churchill Retirement Living, a company set up by Spencer and Clinton McCarthy, the two sons of John McCarthy, the founder of McCarthy & Stone. Here the picture is more mixed, with some apartments experiencing a gain of between 15,000 and 20,686, and some losses of between 1,950 and 62,450.

Retirement property can be divided into two categories: the sheltered accommodation model with few care facilities, as offered by McCarthy & Stone, and Churchill, and the upmarket villages with more care and, in some cases, luxury hotel-standard facilities and higher charges. Property values in the upmarket villages have generally held up better.

Nick Sanderson, the chief executive of Audley Retirement Villages, one of the more upmarket providers, says that there is a difference in the sheltered accommodation model – where homes are built then sold on, with the developer having no continued interest – and schemes such as Audley, where the developer has a continued interest. “We are the management company as well as the developer, we have to live with the consequences.”

The Carlex data looked into two of Audley’s developments and found a more robust resale market: there were some falls, ranging from 10,000 to 60,000, and some significant gains ranging from 70,000 to 520,000. The company charges a sales fee of 1 or 2 per cent, with an additional deferred management fee of 1 per cent of the selling price, increasing by 1 per cent every year. Some villages cap this at 15 per cent, but not all.

The reasons why the resale value can be so poor include high exit fees and service charges. Purchase prices can also be high.

Some retirement houses hold their value. Far too many don’tSebastian O’Kelly, the chairman of Carlex

A spokesperson for McCarthy & Stone, a company that was founded in 1977, says: “The majority of properties managed by McCarthy & Stone have increased in value when resold, based on all managed properties built since 2010 and resold this year. Historic data suggests that about a third of all our properties outperform their local market. In addition, our newer properties are better placed to retain value as a result of the improvements we have made. We do not charge exit fees and abolished them in all new developments built since 2008. A 1 per cent contingency fee, similar to a sinking fund, is payable in our managed developments upon resale.”

It said it will look into the case of Ms Whitehead in more detail with the freeholder, First Port. It should also be noted that while exit fees of 1 per cent were abolished in 2008, anyone who bought a property before that year still has to pay this fee.

Sebastian O’Kelly, the chairman of Carlex, says: “For older people, living communally in a retirement complex is a positive prospect, but the price of this should not be the evaporation of the property’s value. Some retirement-housing providers are excellent, and the properties they sell hold their value. Far too many don’t. An alternative to a property purchase would be to rent.”

Renting a property can be more affordable as well as provide better privacy. However, if one does not wish to shift out of their home, seniors can still get the benefits of these communities, while living in their own place. For example, seniors can prefer to approach a service for home care Pittsburgh PA or different places, which can be similar to on-site healthcare services provided in retirement homes.

As a final thought, retirement homes can be a choice for seniors, but can come with a variety of challenges. While some properties do not charge exit fees, there still needs to be a greater transparency in flipping properties. Finally, seniors can look out for other options such as renting or staying back in their own homes.