Would a retirement village suit you - and your budget?
Downsizing and moving to a retirement village has never been more popular but retirees should be aware of the extra fees that could set them back more than £180,000 in their lifetime.
Around 20,000 retirees in the UK live in retirement villages but growing waiting lists to buy a property in these communities shows demand is strengthening.
While older-people-specific accommodation may conjure up images of grotty sheltered housing, retirement villages are more akin to country clubs – with a price tag to match.
The cost of the property depends on location and fluctuates depending on supply and demand, so the cost of buying a flat or house in the South East is more expensive than in the North. The properties are leasehold and usually have a lease of 125 years.
Buying one of the properties is simple, as long as you are the right age – typically over 60 or 65, depending on the village – and have the cash to buy outright without a mortgage.
The tricky part is navigating myriad fees and charges that will come with the property and budgeting for them.
The most significant charge that adds up over time is the monthly management fee. This fee is used to cover the day-to-day upkeep of the village, such as gardening, as well as the upkeep of your property specifically, such as window cleaning and external repairs.
It also pays for the provision of staff that are on site around the clock to help.
Nick Sanderson, chief executive of upmarket retirement village developer Audley, says the average monthly fee paid by residents at its villages is £700.
He said the fee buys access to a number of amenities, including “membership of a club that is housed in a central building in the village, a restaurant, bistro, bar, library, health and wellbeing centre... and they have staff on site 24 hours a day”.
While many villages offer buildings insurance as part of the monthly fee, utility bills and council tax are not included, so residents have to pay for these separately.
Lorreine Kennedy, a financial adviser specialising in later life clients at Carematters in Hemel Hempstead, said the firm is currently advising one client moving into a retirement village and estimates the monthly cost is £1,000 once all the bills are factored in. Kennedy says the villages were “super” and even at £1,000 a month, villages are better value than care homes, which can cost £1,000 a week, although the care home cost also includes the cost of personal care.
“£1,000 is a large outlay but you are living in a community and it is shown that people living in villages have a longer and healthier life,” Kennedy adds.
In comparison, charges at Anchor Trust villages – a charity that runs care homes and retirement villages – are far lower.
“The service charge at each of our villages will vary depending upon the services provided under the lease, the size of the development and the number of properties between which the costs are apportioned,” says Derya Filiz of Anchor Trust.
“For example, the service charge for The Village in Barkingside is £211.76 a month, whereas at Denham Garden Village this is £233.49.”
Filiz says the management charges are low at Anchor Trust because it “operates a diverse portfolio of properties”.
“The Audley model is based on top-end market only, which is not very inclusive,” she says.
While retirement villages may be cheaper than care homes on the face of it, if a person living in a village needs care in later life this will add to the cost as it won’t be included in the monthly fee.
Sanderson explains different levels of care are offered at Audley depending on what the resident needs. “If your grandmother comes in at age 75, she may be fit and able but this may change and she may need help,” he says.
“It could start with half an hour of housekeeping and then someone to help her get up and dressed and prepare meals... to someone living with her all day.” This care comes at an extra cost and can quickly mount up, especially if the care needs are severe.
Sanderson says on average, people live in Audley retirement villages for 10 years, although the longest a person has been in a village is now 15 years.
“If you have an average management charge of £8,000 a year, built up over 10 years, [that is £80,000]... but at the end of the 10 years if you have high care needs you could then be spending £1,000 to £2,000 a month on care, which could be another £24,000 a year,” he says.
Averaging out those later life care needs over the decade, Sanderson says the cost could be £1,500 a month “over the life of your stay including the management charge”, which totals £180,000.
He argues that this was still cheaper than a care home, where you would pay “at least £800 to £1,000” a week.
The significant charges that can rack up over a person’s lifetime do not stop when the resident passes away and the property is sold; there are also exit fees or a ‘deferred management charge’ (DMC) to factor in.
This fee varies between villages and is either a set percentage or a percentage multiplied by the number of years lived in the village and covers long-term upkeep.
Sanderson says the DMC was “to meet the long-term cost of the village”.
“There is a view that there is something slightly wrong with charging a DMC but it is a cost that is equal to living in a house – you should be putting money aside to pay for future repairs,” he says.
Audley charges 1% of the sale price of the property for each year a person lives in the village, capped at 15%.
“If someone buys a property for £300,000 and they live there for 10 years and sell for £400,000, 10 years equals 10% which is £40,000 to come back to us,” says Sanderson.
“The reason we charge a DMC like that is because the longer you have lived there, the more you have benefited from the facilities.”
Audley says it is “totally transparent” about the charge and the money used only goes to the upkeep of the community. For example, re-roofing of all the properties s set at £2.2 million and renewing of the swimming pool at £225,000.
Sanderson says the DMC was the equivalent of a “sinking fund” that leaseholders in non-retirement properties pay, except instead of the fund being contributed to annually, the fee is taken at the end.
Anchor Trust’s Filiz says “it is important to build up a sinking fund for the long-term maintenance of the properties”.
“For our new retirement villages, rather than include a contribution to the sinking fund within the monthly service charge, we prefer to defer the sinking fund until residents sell their properties,” she said.
“Upon resale of the property a small percentage of the fee is paid into the sinking fund – at Bishopstoke Park this is 4%, at Hampshire Lakes this is 4.5%.”
Although families may baulk at seeing a large chunk of money exit the estate on the resident’s death, Sanderson says if a DMC was not charged, the monthly management fees would be far higher.
“Everything we do is completely transparent... In Australia, the DMC is 30% and they would say that charging this much keeps the charges lower when you are alive,” he says.
Sanderson insists no one living in a village has run into financial difficulty and been unable to cover their monthly management charges but if the situation did arise, the cost of the monthly charge can be rolled up and paid in addition to the DMC when the property is sold.
He says Audley undertook “informal” financial vetting of potential residents.
“We know what their family home sold for and they tell us their income,” he says. “We do not stray into financial advice. 90% of people are selling an expensive house and buying a cheaper one, so have released a substantial amount of equity.”
He adds the average person sells a mortgage-free house worth £500,000 and buys a property in a village for £350,000, and most will have “the state pension as well as some occupational pension”.
When the property is sold after a resident has died, the retirement villages can take care of the sale – for a fee. Audley charges a 1% ‘sales administration fee’ if an outside estate agent is responsible for the sale but an additional 2% is chargeable if you want the company to ‘actively market’ the property.
Kennedy of Carematters says properties are sold in exactly the same way as a normal home and there is no extra work required by the family to untangle the estate other than putting it on the market.
She says that properties only tend to “hang around” if they have been overpriced but there are usually long waiting lists for people who want to purchase retirement properties and they often sell in “a month to six weeks”.
Anchor Trust writes in a ‘right of pre-emption’ to its contracts that gives it the right to buy back the property before it goes on the open market but “the majority... are sold through estate agents at open market value”.
But the fees don’t stop there. Once the property goes on the market, families must be prepared to pay the monthly charge until the property is sold.
Filiz says: “The service charge is payable up until the point that the property is sold as the lease will still require Anchor to provide window cleaning, gardening, estate manager service, etc., to the same value.”
The right to hold or use assets (generally property, but also vehicles) for a fixed period of time at a given price, without transfer of ownership, on the basis of a lease contract. Leasehold ownership of a residential property is simply a long tenancy, the right to occupation and use of the flat for a specified period – the ‘term’ of the lease, which is fixed at the beginning and so decreases in length year by year and the property can be bought and sold during that term. When new, leases are for 99 or 125 years until its eventual expiry, whereupon ownership of the property reverts to the landlord.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
This type of insurance covers the structure and fabric of your property – the bricks and mortar, not the contents (for which you need contents or home insurance). If you have a mortgage, the lender will insist you have a suitable buildings insurance policy in place. Many lenders offer their own building insurance policies, but you don’t have to buy it from your own lender but you have the option of shopping around. The insurance covers you for the rebuilding costs, not the market value of the property.