Bereaved families are inheriting ‘almost unsellable’ retirement flats that cost them hundreds of pounds for every month they are stuck with them, a Money Mail investigation has revealed.
In some cases, they are slashing the asking price in half just to get a sale, leaving them with a fraction of the inheritance their loved one had intended.
Would-be buyers are put off by rising service charges, which have hit £4,090 a year on average, according to analysis by estate agent Hamptons.
That’s up from £2,784 in 2021 and represents an eye-watering 47 per cent rise over five years. By comparison service charges across all flats have risen by 33 per cent over the same period.
Families must pay the service charge on retirement flats even when they are empty. So those struggling to sell face huge costs, resulting in their inheritance acting as a growing burden rather than the financial gift their loved one intended.
In one case seen by Money Mail, the son and daughter of a deceased resident are being charged £15,000 a year – including council tax – while the property is empty and they struggle to sell.
Was £112,000, now: £65,000: An apartment for sale in this block in Poulton-le-Fylde in Lancashire has lost some £47,000 in value since 2010
Ronald Morse-Carter and his wife Sylvia inherited a McCarthy & Stone retirement flat from Ronald’s mother Constance when she died aged 93 in 2020.
She bought the one-bedroom flat in Carnforth, Lancashire, in 2018 for £199,999 and died less than two years later.
Ronald and Sylvia, who are both 75 and live in Portsmouth, Hampshire, have been trying to sell the flat ever since, but it is not attracting interest, even though they have slashed the asking price to just £95,000. The couple want shot of it, as they worry their children could be lumbered with it.
The flat can only be lived in by someone over the age of 60, which diminishes the pool of potential buyers.
Meanwhile, Ronald and Sylvia must pay the service charge, which is close to £3,000 a year, alongside £150 in ground rent.
They have resorted to renting the property out to avoid losing more money on it.
They make £780 per month, which covers the service charge, commission to the letting agent of 10.5 per cent as well as an additional 1 per cent subletting fee to McCarthy & Stone.
‘This is a millstone around my neck that needs to be sold, but I don’t want to just give it away for nothing,’ says Ronald.
‘I tried for 12 months to sell it with McCarthy & Stone Resales and a local estate agent. There was very little interest. During this time I was required to continue paying the service charge in full.’
He adds that the council tax on the property was set to double to £3,828 if it had been left vacant for more than one year, as unoccupied homes can face an ‘empty property’ fee at a higher rate.
‘I therefore let it out through an agent to a single elderly woman,’ he says. ‘Then I tried to sell through something called modern auction – again no interest except a very low offer.
‘It was first valued and listed at £160,000, reduced by stages to £130,000 and is now at £95,000. The agent has been informed that as a reluctant landlord I would accept £80,000.’
Sylvia and Ronald had hoped to use the proceeds of the sale to help family. Sylvia says: ‘Ronald’s daughter Jenny died shortly after his mother.
’She has two children, a teenage son and daughter. We didn’t plan to use the sale proceeds for ourselves – we planned to help them. But we’re not sure what we will be able to give them.’
Why buy flats in the first place?
Retirement flats can be attractive to elderly people who want some support in later life, but not so much that they need to move into a care home.
Amenities can include a 24-hour emergency call system, a house manager available during working hours for support and assistance, as well as a communal space where residents can meet neighbours and family.
In some developments a guest room is available so family members can stay over, although this typically comes with a nightly fee.
On top of this, some retirement villages offer high-quality facilities such as lounges, restaurants, gyms, pools and social activities.
This can afford residents an excellent lifestyle – a combination of independence with care on hand if needed. The service charge may look high, but it can be worth it.
David Fell, lead analyst at Hamptons, says: ‘The relatively high service charges attached to many developments are a drop in the ocean compared to the costs of moving into a care home.
‘For anyone who doesn’t need the level of support provided by a care home, the purchase of a retirement flat will prove a much more cost-effective option.
‘Similarly, someone who decides to stay put in a larger family home and perhaps buy in support, may eventually find it more cost-effective to move into a retirement scheme. They tend to offer some level of support, such as a 24/7 warden and on-site catering.’
Was £208,950, now: £35,000: A flat in this block in Heathfield, East Sussex has fallen in value by some £174,000 since 2010
So why are asking prices being cut?
Service charges vary greatly depending on the type, size and location of the property as well as any extra amenities – but they have been rising across the board.
Retirement home providers often stipulate that their service charges are linked to the retail price index measure of inflation – which is up by 37 per cent in the past five years. Rising energy costs and the increased cost of labour, in particular, are pushing up costs.
Retirement flats also typically come with an array of restrictions, which also makes them harder to sell in a tough market.
All specify that tenants must be a certain age – typically over 55 or 60. They also frequently ban subletting or pets.
For some retirement flats, these service charges have reached levels where they simply no longer resemble value for money.
Finding a buyer then becomes increasingly difficult. The average retirement flat takes 155 days to sell, according to analysis by Hamptons. That’s more than two and a half times longer than the 61 days it takes to sell a typical flat.
Sellers of retirement flats are also accepting heavy discounts. Retirement flats are selling for 93.1 per cent of their original asking price on average, according to Hamptons data.
This means a typical retirement flat on the market at £300,000 ends up selling for £279,300. However, there are some developments that make these averages look too good to be true.
Flats at Mutton Hall Hill in Heathfield, East Sussex, are now seemingly worth a fraction of their original sale prices. One is currently listed for £35,000. It was bought for £208,950 in 2010.
A one-bedroom flat in Lancer House in Colchester, Essex, is currently listed at £150,000 – it was originally bought in 2019 for £279,000.
Another retirement flat in a development on Battersea Park Road in south-west London is currently listed for £450,000. It was bought for £630,000 in 2021.
An apartment in Poulton-le-Fylde, Lancashire, is listed for £65,000 having been originally bought for £112,000 in 2010.
To add insult to injury, those stuck with a retirement flat they can’t sell will still be liable to pay inheritance tax (IHT) on the property value, which is due exactly six months after the date of death.
Most estates don’t get hit by IHT, but those that do face a 40 per cent charge on assets above the IHT threshold.
For single people, this threshold is £325,000. For married people or those in a civil partnership, this threshold can be a maximum of £650,000, with a further allowance to pass on a family home to direct descendants.
Andy Canfield and his sister are struggling to sell a McCarthy & Stone one-bedroom retirement flat in Townsend Court in Rushden, Northamptonshire. The flat had belonged to their mother who left it to the both of them in her will.
It has been on the market since August last year with the McCarthy & Stone sales team. McCarthy & Stone is one of the biggest retirement flat developers in the UK and is owned by US private equity firm Lone Star Funds. McCarthy & Stone says leaseholders can either use its in-house sales team to sell their properties or instruct their own estate agent.
Andy and his sister are facing £1,000 per month in costs and this could soon rise to around £1,200 per month if they have to start paying double council tax, which would see their annual bill to the local authority go from £2,487 to £4,974.
‘The price has been reduced from £120,000 as valued by them, to £85,000 and we have only had a handful of viewings,’ says Andy.
‘The problem we have – and one I believe to be a big deterrent to others considering purchasing such a flat – is that we still have to pay the full service charge until it is sold, plus the council tax, which could soon be doubled. McCarthy & Stone have no downside on whether it is sold on or not, they still receive their money.’
Discounts: The average retirement home goes on the market at £300,000 and ends up selling for £279,300
Looming extra fees
There are also a wide array of extra fees that can end up devouring yet more of family members’ inheritances when retirement properties are sold. For example, some retirement flats have so-called deferred membership fees.
These contribute towards a sinking fund used for upkeep of the buildings. They accrue over time, are typically payable when an apartment is sold and are often capped at 20 per cent or even 30 per cent of the final selling price.
Some retirement home providers have even included clauses in the contracts where they are allowed to pocket up to half of the capital gains on any sale if the property has risen in value.
One resident living in a one-bedroom retirement flat in Chelsea, west London, who wishes to remain anonymous, says he is paying a deferred sinking fund contribution on top of his £5,000 annual service charge. It is levied as an extra 0.6 per cent of the final selling price per annum and there is no cap.
As he’s been there for 13 years to date, if he were to sell now, he would have to pay the freeholder 7.8 per cent of the proceeds. With his flat worth around £500,000, that could mean forking out £39,000 on top of the normal estate agent and legal fees.
Old and tired decor
David Fell, of Hamptons, says older retirement apartments, in particular, can be a tough sell.
‘Many flats are between ten and 30 years old and still come with original kitchens and bathrooms,’ he says. ‘The appetite among owners to refurbish them is limited, despite the strong demand for turnkey properties.’
Bob Crowther, 64, who is retired, is facing exactly this dilemma selling his late mother’s one bedroom flat in a 52-apartment retirement complex in Romford, east London. She bought it for £115,000 almost ten years ago.
Now it is on the market at £80,000 with no serious buyers showing interest.
Bob says: ‘Mum died last November and I put her flat on the market in January. We reduced the price significantly to acknowledge that some modernisation would be required.
‘Each month we are supposed to pay £300 in management fees, which we have deferred until the flat is sold. The freeholder will also take a percentage of the sale price and other costs of around £1,000 just to sell the flat.’
A McCarthy & Stone spokesman says its specialist in-house Resales team helped customers sell 800 properties last year, and it supports any owner who wants to rent their property while it’s being sold.
They said: ‘There are fundamental misunderstandings about service charges. There is absolutely no financial benefit to McCarthy & Stone when a property is empty or waiting to be sold.
‘Service charges are governed by legislation and cover the current and future costs of running a safe and secure development, with these passed to customers at the same price it costs us to procure them – we do not add any mark-up.’
He adds: ‘The overwhelming majority of residents and their families are delighted with their experience, giving us our industry-leading, five-star Trustpilot score.
‘Many McCarthy & Stone properties retain or go up in value, but we recognise that this isn’t the case with every sale. As the market evolves, we are looking at how we can do more to support existing owners who are looking to sell.’
- Are you struggling to sell a retirement flat? moneymail@dailymail.co.uk
