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Beware the ‘new retirement home’ rip-off

How to lose £50,000 to £100,000 in one day

My mother is considering buying a retirement flat, so I thought I’d check a few prices. After talking to the main developers, I was struck by the apparently large difference in prices between newly-built flats and flats that were just a few years old. For example, in one town new one-bedroom retirement flats are selling for between £210,000 and £225,000. Yet one-bedroom flats that are less than ten years old, built in the same style to the same specifications by the same developer, often within a couple of miles of the new-builds, were only fetching £80,000 to £130,000. I found a similar situation with two-bedroom flats. New ones were priced from £270,000 to £320,000, yet resales were down in the £150,000 to £200,000 range.

Of course, you could argue that new-builds should cost more as they would be in much better condition than resales and have longer leases. But in some cases, the resales were actually more inviting as they were built when land was cheaper and so had larger gardens and grounds. From comparing over twenty developments, I discovered that a retirement flat bought new, straight from the developer will lose around a third of its value – up to £100,000 – as soon as it has had just one owner. The main reason new builds are so expensive may be that developers know their customers will probably not be particularly price sensitive as they may be moving from larger detached houses into their retirement flats and may well have sold their former family homes for considerably more than they’ll be paying for their retirement flat.

Pensioners with large amounts of ready cash are usually ripe for plucking. So a jolly salesperson rabbiting on about how wonderful retired life will be with the security of an on-site warden and such exciting activities as weekly bingo, bridge evenings and excursions to the theatre can easily gloss over the fact that new retirement flats are frequently hideously expensive.

retirement homes

On the other hand, resales may be more modestly priced as they tend to go for a price that is closer to general market rates for similar properties. Moreover, they will often be sold by owners moving out into care homes who may be under pressure to sell fairly quickly to get money to fund their care home fees of up to £30,000 a year. Or else they may be put up for sale by families of owners who have died. These families may be interested in getting a reasonably rapid sale to avoid paying service charges for the six months or more it can often take to sell a previously-occupied retirement flat.

One flat I saw was sold for £179,950 as a new build and then three years later it had to be reduced to £99,950 to sell – a price reduction of about 45% – £80,000 lost in just 3 years.

I asked two experts why new retirement flats were so expensive – one was an estate agent and the other a person working as a seller for one of the largest retirement flat development companies. The estate agent said that in her opinion new retirement flats were a complete rip-off and only a fool would pay the prices demanded by the developers. The salesperson seemed a bit embarrassed at the question and had to think for quite some time before admitting she didn’t really have an explanation but that lots of her customers were very happy with their properties.

New retirement flats are almost as much a scam as timeshares.

The bottom line is that any new-build retirement home can easily lose £50,000 to £100,000 of its value as soon as the buyer has signed the contract to take it. So, buying a resale from a previous owner or their family can save your parents, other relatives or you an awful lot of money – just something to bear in mind should anyone in your family or social circle start thinking about moving into a retirement property.

5 comments to Beware the ‘new retirement home’ rip-off

  • NoMore

    Very true – a new such development is currently taking shape where I live and the sale prices are vastly above the usual price for a 1 or 2 bed flat (50%+). Their only advantage would be to save the old dears from crossing a busy road to get to the action. Facing the new development is an older one (same builders) where flats go for a bit below the average for a flat here. It has far more extensive grounds filled with benches, arbours and trees. That’s a lot of cash to fork out to save going over a couple of zebra crossings!

  • Stuz Graz

    The service charges on these flats also need to be examined. I expect older flats were developed before the full profit potential from service charges was fully realised so should probably be lower. But sinking fund balances if they exist and any potential future repairs need to be taken into consideration plus whoever the management company is.

    The leasehold sector is full of stories of management companies undertaking excessive amounts of work at very inflated prices because the contract gives them a percentage of the work price so the higher the better. Not sure if retirement properties could buy their freehold but that would be the ideal solution. But if not can just imagine how unscrupulous management companies would love a building full of trusting oaps who wont queston anything.

  • rob

    Dont buy just rent, my mother in law lives in sheltered accomodation just like you describe, warden, lounge area weekly bingo etc.. and just pays about £50 – £100 a week rent.

    she`s 67 now, if she`s fortunate to live 20 years she`ll spend less than £100k. If she was fortunate enough to have sold a home, she could have invested the money or bought a small buy to let flat to cover her own rent so her outlay would have been close to zero.

  • John Fields

    Mr. Craig, thank you for this blog. As an old person, I feel that ‘forewarned is
    forearmed’. I like Rob’s comment, it makes a lot of sense. Even in old age the
    greedy bastards will not leave you alone. You may understand why reading your
    comments has become part of my daily routine. Thank you.

  • Chris

    Worse than retirement homes are the proliferating care homes. I have some personal experience.

    My mother (92) was taken into hospital following a fall. She then alternated for 9 months in/out until her local council decided to place her in a home. We did not object at the time but the council regarded her placement as permanent whereas we believed it was just to get her back one her feet (so to speak)

    The home charged the council £485 / week and after 12 weeks my mum would have to pay this herself because she had a home to sell, although she had very little savings (much less than the £25k limit applied to home care and £16K to council tax). The council would then take over the house sale and pay the weekly fee.

    Clearly this was a perverse incentive for the council (who otherwise would have to provide home carers) to use the care homes.

    Having made a lot of fuss (and I mean a lot) we got a “re-ablement” scheme set up for my mum. Free for 6 weeks then means tested.
    This has kept my mum in her home and the council has not (yet) gots its hands on the proceeds of a future sale of the house.

    However, the biggest scandal is that whilst the care home charged the council £485/week once my mum became self funding on the house sale proceeds the weekly rate would double!

    My Aunt is in a nice home in a nice part of the south east. It has a gym, restaurant, bar, and other goodies. The weekly (self funded) rate is £1250+care+nursing. Unfortunately, my aunt is wheelchair bound so relies on the (mainly foreign) staff to move her around and consequently sits in her room for most of the day.

    In my view the whole care system is grossly profiteering at the expense of either next generations’ inheritances or (just as unpleasant) the local councils.

    The only answer is to have no savings and live in a rented house after giving away your inheritance a long time before you need home care or a care home.

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