Retirement flat 'sinking fund'

Albermarle

GDB2222 said:

Albermarle said:

GDB2222 said:

Albermarle said:

Another friend has also mentioned over 55s flats to me 'as they're cheap'.

Buying a second hand one can be good value it terms of just the purchase price, as new ones lose a lot of value. More like buying a car than a property.

There have been plenty of people posting here about their difficulties selling retirement flats, because it is so difficult finding people prepared to pay the ongoing costs. 

Also I think there is an oversupply, and there is a more restricted buyer base than usual ( only older people) .

I think it’s a very restricted buyer base. The buyers need to require the services provided, so perhaps not be in the best of health. But they need to have the energy required to sell their present home, throw away loads of their stuff (because these flats are usually small) and move. Plus of course they need to have the funds to buy and pay the ongoing costs. 

Not always small.
24 Hillcrest House | Retirement Properties | Audley Villages

Okay, not always! Interesting that that has a 2% annual charge, on top of £975 per month. (Notice how they have kept that just below the magic £1000 figure.). A total of £45k pa. Do they have to provide service charge accounts adding up to that amount?



These things really are a rip off, preying on the elderly. 

I think there will be an option of a 1% deferred charge, but the monthly service charge will be nearly double.
Parking charge is about a grand a year.

As these places are only for the well off, then they can probably afford it. For sure similar places are springing up everywhere, especially in areas where people have expensive houses to sell.
I think more of a problem is at the lower end of the market, where money is tighter,

NeonWaves

Flugelhorn said:

NeonWaves said:

Flugelhorn said:

many of these flats have significant management and maintenance charges, to reduce these (or at least make them look less) they pile it into this sinking fund fee, so it is only paid later..  2% per year is massive - usual is more like 1% of the sale price etc 

The service charge is £217 per month (which apparently can go down as well as up!), so it's not even as if that's rock bottom to make up for it. 

probably on the low end for flats TBH - probably more of the real maintenance charge is going into the sinking fund charge . I know of one where it is above 5K (bit there are quite a few services included )

The flats that I have looked at and others that I've seen advertised in my area have annual service charges varying between £1,600 - £3,000 ish. One flat I looked at (not retirement) had no monthly service charge, apparently it was 'ad hoc' whenever anything needed doing! It looked like their definition of 'needed doing' and mine was different! In any case I knew that 'ad hoc' meant another block to steer clear of to avoid large lump charges! 

Most retirement complexes in this area are no where near £300k. Most just under or around £200k. 

SarahB16

katejo said:

I am 61 and currently have a terraced house which I own outright. I am thinking about plans for retirement. If I were to become less mobile, I might have to move but I am dreading it because of all the problems with leasehold and retirement flats. My stairs are narrow and not suitable to fit a stairlift!

Regarding how narrow your stairs are there are stairlifts nowadays that will fit narrower stairs.  Before presuming you need to move do please take a look.

Also have you ever considered a senior cohousing scheme.  Perhaps something similar to this one:  

OWCH   

Vacancies do come up in cohousing schemes and because residents undertake the vast majority of the work themselves the management/service chargers are relatively low.   Perhaps have a look on the UK cohousing website.  

SDLT_Geek

NeonWaves said:

I'm looking to buy and just about qualify for a retirement flat (in terms of age) After seeing a lovely flat, I returned to the property for a second viewing very keen to put in an offer, just deciding on how much. Same afternoon I rang the estate agent with offer (after discussing with frined who had accompanied me) and it was then that the estate agent said 'oh I have more information for you, those flats are subject to a 'sinking fund' of 2% of property value when you (or family) sell for each year you live there' 

Apart from wishing I'd known about this fund much earlier in the process (!) is the 2% a normal rate? I can't find much online about this. There doesn't seem to be a cap? I don't have kids (just a niece) so I'm not necessarily looking to make a profit to pass on but potentially, as I'm the lower age range, by the time it comes to sell could lose money? 

I'm annoyed with the estate agent as I feel it's crucial information needed to consider when offering, or indeed if. And means using valuable time trying to research the pros/cons of this. 
Any advice here or where I can get it please? Thanks

There might be a stamp duty land tax issue here.  (I am assuming you are buying in England.)

What is it that you get for the big exit fee paid when the flat is sold?  It might be for example:

(a)  Deferred payment for ongoing services, because the amount you are paying each year does not cover the full costs, so part of the cost is "rolled up" and paid out of sale proceeds.

(b)  In order to get the lease in the first place; this structure keeps the initial price down a bit, if there is a payment later.  In some of these schemes there is even an option to pay more up front and not have the exit fee / event fee.

If it is (b), rather than (a), then the contingent and uncertain sum is likely to count as chargeable consideration for SDLT purposes and SDLT will be due on the sum in due course.  It would be sensible to apply to HMRC for deferment of payment of the SDLT on this element.  Otherwise, when it is due, the SDLT will be due with interest.

SarahB16

SDLT_Geek said:

NeonWaves said:

I'm looking to buy and just about qualify for a retirement flat (in terms of age) After seeing a lovely flat, I returned to the property for a second viewing very keen to put in an offer, just deciding on how much. Same afternoon I rang the estate agent with offer (after discussing with frined who had accompanied me) and it was then that the estate agent said 'oh I have more information for you, those flats are subject to a 'sinking fund' of 2% of property value when you (or family) sell for each year you live there' 

Apart from wishing I'd known about this fund much earlier in the process (!) is the 2% a normal rate? I can't find much online about this. There doesn't seem to be a cap? I don't have kids (just a niece) so I'm not necessarily looking to make a profit to pass on but potentially, as I'm the lower age range, by the time it comes to sell could lose money? 

I'm annoyed with the estate agent as I feel it's crucial information needed to consider when offering, or indeed if. And means using valuable time trying to research the pros/cons of this. 
Any advice here or where I can get it please? Thanks

There might be a stamp duty land tax issue here.  (I am assuming you are buying in England.)

What is it that you get for the big exit fee paid when the flat is sold?  It might be for example:

(a)  Deferred payment for ongoing services, because the amount you are paying each year does not cover the full costs, so part of the cost is "rolled up" and paid out of sale proceeds.

(b)  In order to get the lease in the first place; this structure keeps the initial price down a bit, if there is a payment later.  In some of these schemes there is even an option to pay more up front and not have the exit fee / event fee.

If it is (b), rather than (a), then the contingent and uncertain sum is likely to count as chargeable consideration for SDLT purposes and SDLT will be due on the sum in due course.  It would be sensible to apply to HMRC for deferment of payment of the SDLT on this element.  Otherwise, when it is due, the SDLT will be due with interest.

The deferred payment is to keep the yearly service charges/management costs lower.  It does not lower the initial purchase price of the home.

The providers of these homes refer to the lower disposable income that many pensioners have and they say by having the exit fee it keeps the annual amount payable for the service charges lower.  

To the OP I know you have said the exit fee is 2% per annum but please do check (and double check) this is not capped.  From my knowledge the amount is usually capped after a certain number of years (typically five years). 

Albermarle

SarahB16 said:

SDLT_Geek said:

NeonWaves said:

I'm looking to buy and just about qualify for a retirement flat (in terms of age) After seeing a lovely flat, I returned to the property for a second viewing very keen to put in an offer, just deciding on how much. Same afternoon I rang the estate agent with offer (after discussing with frined who had accompanied me) and it was then that the estate agent said 'oh I have more information for you, those flats are subject to a 'sinking fund' of 2% of property value when you (or family) sell for each year you live there' 

Apart from wishing I'd known about this fund much earlier in the process (!) is the 2% a normal rate? I can't find much online about this. There doesn't seem to be a cap? I don't have kids (just a niece) so I'm not necessarily looking to make a profit to pass on but potentially, as I'm the lower age range, by the time it comes to sell could lose money? 

I'm annoyed with the estate agent as I feel it's crucial information needed to consider when offering, or indeed if. And means using valuable time trying to research the pros/cons of this. 
Any advice here or where I can get it please? Thanks

There might be a stamp duty land tax issue here.  (I am assuming you are buying in England.)

What is it that you get for the big exit fee paid when the flat is sold?  It might be for example:

(a)  Deferred payment for ongoing services, because the amount you are paying each year does not cover the full costs, so part of the cost is "rolled up" and paid out of sale proceeds.

(b)  In order to get the lease in the first place; this structure keeps the initial price down a bit, if there is a payment later.  In some of these schemes there is even an option to pay more up front and not have the exit fee / event fee.

If it is (b), rather than (a), then the contingent and uncertain sum is likely to count as chargeable consideration for SDLT purposes and SDLT will be due on the sum in due course.  It would be sensible to apply to HMRC for deferment of payment of the SDLT on this element.  Otherwise, when it is due, the SDLT will be due with interest.

The deferred payment is to keep the yearly service charges/management costs lower.  It does not lower the initial purchase price of the home.

The providers of these homes refer to the lower disposable income that many pensioners have and they say by having the exit fee it keeps the annual amount payable for the service charges lower.  

To the OP I know you have said the exit fee is 2% per annum but please do check (and double check) this is not capped.  From my knowledge the amount is usually capped after a certain number of years (typically five years). 

In the one I looked at recently it was 15 years. No idea what the norm is though.

NeonWaves

SDLT_Geek said:

NeonWaves said:

I'm looking to buy and just about qualify for a retirement flat (in terms of age) After seeing a lovely flat, I returned to the property for a second viewing very keen to put in an offer, just deciding on how much. Same afternoon I rang the estate agent with offer (after discussing with frined who had accompanied me) and it was then that the estate agent said 'oh I have more information for you, those flats are subject to a 'sinking fund' of 2% of property value when you (or family) sell for each year you live there' 

Apart from wishing I'd known about this fund much earlier in the process (!) is the 2% a normal rate? I can't find much online about this. There doesn't seem to be a cap? I don't have kids (just a niece) so I'm not necessarily looking to make a profit to pass on but potentially, as I'm the lower age range, by the time it comes to sell could lose money? 

I'm annoyed with the estate agent as I feel it's crucial information needed to consider when offering, or indeed if. And means using valuable time trying to research the pros/cons of this. 
Any advice here or where I can get it please? Thanks

There might be a stamp duty land tax issue here.  (I am assuming you are buying in England.)

I am in Wales so Land Transaction Tax. The properties I'm looking at will be in the zero percent band. 

NeonWaves

SarahB16 said:

SDLT_Geek said:

NeonWaves said:

I'm looking to buy and just about qualify for a retirement flat (in terms of age) After seeing a lovely flat, I returned to the property for a second viewing very keen to put in an offer, just deciding on how much. Same afternoon I rang the estate agent with offer (after discussing with frined who had accompanied me) and it was then that the estate agent said 'oh I have more information for you, those flats are subject to a 'sinking fund' of 2% of property value when you (or family) sell for each year you live there' 

Apart from wishing I'd known about this fund much earlier in the process (!) is the 2% a normal rate? I can't find much online about this. There doesn't seem to be a cap? I don't have kids (just a niece) so I'm not necessarily looking to make a profit to pass on but potentially, as I'm the lower age range, by the time it comes to sell could lose money? 

I'm annoyed with the estate agent as I feel it's crucial information needed to consider when offering, or indeed if. And means using valuable time trying to research the pros/cons of this. 
Any advice here or where I can get it please? Thanks

There might be a stamp duty land tax issue here.  (I am assuming you are buying in England.)

What is it that you get for the big exit fee paid when the flat is sold?  It might be for example:

(a)  Deferred payment for ongoing services, because the amount you are paying each year does not cover the full costs, so part of the cost is "rolled up" and paid out of sale proceeds.

(b)  In order to get the lease in the first place; this structure keeps the initial price down a bit, if there is a payment later.  In some of these schemes there is even an option to pay more up front and not have the exit fee / event fee.

If it is (b), rather than (a), then the contingent and uncertain sum is likely to count as chargeable consideration for SDLT purposes and SDLT will be due on the sum in due course.  It would be sensible to apply to HMRC for deferment of payment of the SDLT on this element.  Otherwise, when it is due, the SDLT will be due with interest.

The deferred payment is to keep the yearly service charges/management costs lower.  It does not lower the initial purchase price of the home.

The providers of these homes refer to the lower disposable income that many pensioners have and they say by having the exit fee it keeps the annual amount payable for the service charges lower.  

To the OP I know you have said the exit fee is 2% per annum but please do check (and double check) this is not capped.  From my knowledge the amount is usually capped after a certain number of years (typically five years). 

I've tried to look up for a cap on these and can't see anything. My estate agent said there isn't a cap. (although they've misled me on another issue on another property too so I have no faith in anything they say now!)
Where did you see that there's a cap?
Thanks

SarahB16

NeonWaves said:

SarahB16 said:

SDLT_Geek said:

NeonWaves said:

I'm looking to buy and just about qualify for a retirement flat (in terms of age) After seeing a lovely flat, I returned to the property for a second viewing very keen to put in an offer, just deciding on how much. Same afternoon I rang the estate agent with offer (after discussing with frined who had accompanied me) and it was then that the estate agent said 'oh I have more information for you, those flats are subject to a 'sinking fund' of 2% of property value when you (or family) sell for each year you live there' 

Apart from wishing I'd known about this fund much earlier in the process (!) is the 2% a normal rate? I can't find much online about this. There doesn't seem to be a cap? I don't have kids (just a niece) so I'm not necessarily looking to make a profit to pass on but potentially, as I'm the lower age range, by the time it comes to sell could lose money? 

I'm annoyed with the estate agent as I feel it's crucial information needed to consider when offering, or indeed if. And means using valuable time trying to research the pros/cons of this. 
Any advice here or where I can get it please? Thanks

There might be a stamp duty land tax issue here.  (I am assuming you are buying in England.)

What is it that you get for the big exit fee paid when the flat is sold?  It might be for example:

(a)  Deferred payment for ongoing services, because the amount you are paying each year does not cover the full costs, so part of the cost is "rolled up" and paid out of sale proceeds.

(b)  In order to get the lease in the first place; this structure keeps the initial price down a bit, if there is a payment later.  In some of these schemes there is even an option to pay more up front and not have the exit fee / event fee.

If it is (b), rather than (a), then the contingent and uncertain sum is likely to count as chargeable consideration for SDLT purposes and SDLT will be due on the sum in due course.  It would be sensible to apply to HMRC for deferment of payment of the SDLT on this element.  Otherwise, when it is due, the SDLT will be due with interest.

The deferred payment is to keep the yearly service charges/management costs lower.  It does not lower the initial purchase price of the home.

The providers of these homes refer to the lower disposable income that many pensioners have and they say by having the exit fee it keeps the annual amount payable for the service charges lower.  

To the OP I know you have said the exit fee is 2% per annum but please do check (and double check) this is not capped.  From my knowledge the amount is usually capped after a certain number of years (typically five years). 

I've tried to look up for a cap on these and can't see anything. My estate agent said there isn't a cap. (although they've misled me on another issue on another property too so I have no faith in anything they say now!)
Where did you see that there's a cap?
Thanks

When I referred to the cap I was talking about what I generally see in the retirement sector. 

For example here re the exit fee/event fee being 3% per annum but capped at 6 years:  A4-Summary-of-Charges-booklet_Heaton-Mersey-v2.pdf

I do not know who owns the flat you are interested in (i.e. McCarthy Stone, Churchill, Adlington, etc) so I haven't specifically seen that there is definitely a cap on the flat you are interested in as you have not shared that information with us on this thread (and neither am I asking you to).     

It may very well be that the flat you are looking at does not have a cap but from my knowledge of the sector the majority do have caps.  You really need to look up 'event fee' or 'exit fee' and see what it says and if on their website it just says 2% per annum and does not refer to a cap then yes, it would appear, in your situation that there isn't a cap.

There are lots of negative comments regarding these schemes (high service charges, high event/exit fees, difficulty in selling them) and I would agree with all of those negative comments.  There may be some people that these types of schemes appeal to (i.e. the relatively wealthy) but the vast majority of middle income pensioners I think the service charges are far too high.  

You may also wish to check by how much the annual service charges can increase by each year, e.g. RPI, etc.  

If you have any other questions I am happy to answer them for you.