The hidden costs of retirement housing
Guest blogger Joe Oldman of Age UK looks at the hidden costs of retirement housing and steps the OFT has taken to clean up the problem.
At the moment very few of us seem to consider moving into retirement housing as we get older, despite the many benefits. It can take away worries about home maintenance, offer security, promote independence, prevent isolation and can give access to a friendly supportive community.
The recent debate about older people occupying family housing after their children have left home, leaving rooms empty, has helped focus attention on the importance of this area of the housing market. There seems to be an assumption that older homeowners have a range of housing options available to them based on the equity value of their property – but this isn’t necessarily the case.
You still need a significant level of equity to buy a retirement flat or even to simply downsize to something else more suitable. Even if you can afford to buy a leasehold flat you still need to take into account the ongoing costs, such as service charges and ground rent.
Costs that are hidden away
The problem is that these costs are not always easy to calculate. Indeed some of them may be hidden away in the small print of the lease. The Office of Fair Trading has recently released the outcome of a three-year investigation into what are known as ‘transfer’ or ‘exit fees’. These charges are often based on a percentage of the market value when the property is sold. This can be a significant sum with percentages ranging from 0.25% and 12.5% (based on the OFT investigation).
What makes it worse is that the charges are often not in exchange for any services, such as the cost of administering the transfer - they represent pure profit for the landlord. Leaseholders are taken by surprise because they haven't realised this payment was part of the contract they signed when they purchased the property.
This is partly the consequence of the complexity of leasehold contracts and may also indicate poor advice, by non-specialist solicitors, during the conveyancing process.
Why these charges are unfair
The OFT concluded that the charge was unfair for a number of reasons.
They did not accept the argument, made by some landlords, that the fee was a way of deferring costs to make a property more affordable at the beginning. They said that it was often difficult for consumers to properly assess the financial significance of the transfer fee, especially given it's determined by the market value of the property at the point of transfer, which is difficult to predict.
The OFT also ruled that transfer fees for sub-letting were unfair. Theoretically, a leaseholder might have to pay a transfer fee for sub-letting every six months - depending on the length of the tenancy. This is very important in the current economic climate, where leaseholders are unable to sell and may need to sublet to cover ongoing property charges.
What's being done
Although the OFT came to the conclusion that transfer fees are unfair, it has reached a compromise solution with large sections of the retirement housing industry.
This means that for large parts (though not all) of the sector, there will be no fee for leases passed on through inheritance and on sale it will be restricted to 1% based on either the price the resident bought the property for or the price on sale before transfer - whichever is the lower amount.
In addition, there will be a flat rate fee for sub-letting of £85. Despite this compromise solution, the OFT has said it may still review the position if the agreement with the sector proves insufficient. It has also called on the Government to extend the role of Leasehold Valuation Tribunals to allow older residents to challenge unfair fees (currently outside their jurisdiction).
We need to go further!
Although Age UK welcomes the progress made by the OFT compromise, we would still like the Government to legislate to remove transfer fees altogether, to help restore confidence to consumers.
Retirement housing can be a great choice for many of us as we get older – but it is vital that potential purchasers obtain good independent advice that focuses on the long term costs and explores all the options available. The Age UK factsheet on buying retirement housing is a good starting point. To obtain more details about specific schemes you can contact the Elderly Accommodation Counsel, which specialises in this area.
Joe Oldman is Housing Policy Adviser for Age UK
What do you think? Has the OFT done enough? Or is its compromise leaving too many elderly people facing unfair fees? Let us know your views in the comment box below.