Buying a home for your retirement? Five things you need to consider
In this article, Kerry Dundas, our residential conveyancing expert, looks at some of the things you need to consider when buying a home for your retirement.
Funding a house purchase in later life
Many older homeowners can afford to fund their purchase from the net sale proceeds of their existing home. If you are in this fortunate position, you can finally become mortgage free. However, this does mean synchronising your sale and purchase, or selling your existing home first, so you will need to be organised and find a conveyancer who can keep your sale on track.
If you do need to borrow, finding the right mortgage may be harder as you get older. Many lenders place age restrictions on who can borrow, and some will not lend against certain types of retirement property. Your lender may agree to transfer your existing mortgage, and recent changes have made it easier for older borrowers to take out a fresh mortgage. For example, several lenders now offer retirement mortgages which allow you to pay just the interest each month. The loan is paid off when your home is finally sold. However, this is still something of a niche area and it is important to get specialist independent financial advice to ensure any arrangement is right for you.
The difference between freehold and leasehold
Most properties in dedicated retirement complexes or sheltered accommodation are leasehold. So too are most flats which are another popular option for downsizers. If you are used to owning a freehold, some of the differences between freehold and leasehold may surprise you.
With a freehold, you own your home outright. In contrast, a lease only gives you the right to occupy the property for a set number of years. A lease is therefore a diminishing asset.
You will also have a landlord, to whom you must pay ground rent and, usually, a service charge to cover insurance and the upkeep of common parts. This can be an advantage if it relieves you of the responsibility for repairs and for keeping the garden tended. However, the downside is that it will also probably add considerably to the ongoing costs of ownership and you will need to factor this into your budget.
A lease will also include restrictions on your use of the property. For example, you may not be allowed to keep pets or you may need permission to make alterations. An experienced conveyancing solicitor can explain these provisions to you, so you can ensure the property still meets your needs. This is particularly important with retirement properties, where leases often contain additional restrictions that you would not find elsewhere.
For example, leases may restrict ownership to people over a certain age. This means there will be fewer potential buyers when you, or your heirs, come to sell, and this may affect your property’s value. Some leases also prevent you from sharing occupation with another family member or carer who does not meet the age requirement. This could cause problems if your personal circumstances change or you need additional live-in help.
Service charges for retirement properties are often high compared to conventional homes because of the additional healthcare facilities on offer. As well as factoring these costs into your budget, you should consider whether they are likely to increase and by how much. Remember too, that you will still have these expenses even if the property is empty, for example, if you go into long-term care.
You may be attracted to a development because of the additional services provided, for example an on-site restaurant or resident manager. However, some of these may be discretionary and could cease in the future. Your solicitor can check which services the landlord is obliged to provide and which can be withdrawn.
What happens on resale?
Some leases of retirement homes impose additional charges if you want to sell. Typically, these range from one per cent to thirty per cent of your home’s value. In some cases, these charges will also apply if you die and your property passes to your loved ones or next of kin. Unfortunately, these types of provision, and their consequences, are not always clear to buyers.
A solicitor who is experienced in dealing with retirement properties can help you to avoid potentially costly pitfalls, allowing you to relax and enjoy your new home.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published.