Kathleen Smith, who died in her 90th year, would be proud to have left behind four wonderful grandchildren, a son with a great career, and an inheritance of six figures to help make their lives easier.

‘She bought a retirement flat for £124,000 in 2006 and died eight years later, probably thinking it had gone up in value like most other properties in the country,’ says her son, Michael, an Oxfordshire-based academic. ‘Isn’t that what we all want to do — leave something behind for our loved ones?’

Kathleen probably would have been horrified, then, to find out that it took seven years to sell her home — and that during those difficult years, her family was forced to pay almost £16,000 in council tax, service charges and ground rent to retain ownership of it.

Huge losses: Kathleen Smith paid £124,000 for a her retirement flat in 2006. Her family only managed to get £60,000 for it when they finally managed to sell it this year

Huge losses: Kathleen Smith paid £124,000 for a her retirement flat in 2006. Her family only managed to get £60,000 for it when they finally managed to sell it this year

The one-bedroom flat, in Oswestry, Shropshire, finally sold two weeks ago for just £60,000. 

That’s a £64,000 reduction in her legacy, even before taking into account those service charges and the house price inflation she would have achieved if she had bought a non-retirement flat anywhere else in the town.

She hadn’t. Like tens of thousands of other retirees, she had bought a flat sold by Britain’s biggest retirement housebuilder, McCarthy & Stone. Michael, 73, says that he found it hard to believe anyone would ever touch such a property. 

“The high service fees are outrageous and there was a flood of homes on the market that had been sold for prices that could not be matched.

“Across the country people are suffering huge losses as they discover that their investment flat has dropped in value.

Because of the reputational difficulties caused by leasing sales models, which resulted buyers being subject to ever-increasing fees, retirement housing is not as popular in the UK.

This is a much lower percentage than the 12 percent in Australasia or the U.S.

Leasehold models are where your lease allows you to stay in the flat for a certain amount of time, while the building is yours. 

In its properties McCarthy & Stone has created the freehold but has often sold it onto an outside investor which sets service charges to cover maintenance, repairs and insurance. Although ground rents rights can be sold as well, these often are included in the lease.

According to the McCarthy & Stone website, a typical service charge is £48.93 a week for a one-bedroom apartment and £73.36 a week for a two-bed — based on one of its properties in Sanderstead, Surrey. The fees are updated every year.

Retirement properties are subject to age restrictions, making it more challenging for them to be sold. 

McCarthy & Stone’s website says it offers three type of developments, which are exclusive to over-55s, over-60s and over-70s respectively.

Unwanted: Kathleen Smith's one-bedroom flat, in Oswestry, Shropshire, finally sold two weeks ago for just £60,000

Unwanted: Kathleen Smith’s one-bedroom flat, in Oswestry, Shropshire, finally sold two weeks ago for just £60,000

‘Retirement housing in the UK is a failure and the elderly are deeply — and rightly — sceptical about downsizing to designated retirement housing,’ says Sebastian O’Kelly, founder of the campaign group Better Retirement Housing.

They are right to be skeptical. It has proven to be a snake hole of scams in retirement housing and an abominable resale value.

The single most costly residential investment you could make is buying a retirement home. According to him, falls of as high as 70% in property value are common.

These findings are coming as seniors feel pressured to sell their homes to make room for new ones. 

Last week, Chris Pincher, Housing Minister, told the House of Lords about how almost 40% of ten properties were ‘under-occupied’. He suggested that younger families could better use these properties. 

He also said that government wanted to encourage more housebuilders to build developments that are suitable for the elderly.

Letdown of lease

According to O’Kelly the key reason the sector has low resale value is because of the “housebuilder” business model.

He says: ‘You build a block, sell out the flats for what you can get using a slick marketing operation, include long-term revenue streams in the lease — such as ground rents, exit fees and subletting fees — ensure the lease is for only 125 years and then sell the freehold on to an investor.’

Shock: Kathleen' son Michael struggled to sell his mother's flat for seven years

It’s shocking: Kathleen’s seven-year-old son Michael had difficulty selling his mother’s home.

Future owners may have to pay for the extension of their lease. This is often done before it falls below 80 years. It can be expensive and could cost thousands. 

“Add this to the predatory management fees and service charges, and the sale can be problematic,” says Mr O’Kelly.

McCarthy & Stone was founded by John McCarthy and Bill Stone in 1963. The company owned 70% of the market for retirement by 1996. 

By 2004, as a listed company, it was recording pre-tax profits of £114 million and both men had sold their shares in the company. 

According to the company’s website, 58,000 homes have been built in 1300 communities. 

In 2006, it was taken private by a banking consortium for £1.1 billion before being listed on the Stock Exchange again in 2015.

Earlier this year it was bought by the U.S. equity company Lone Star for £647 million.

Losses large 

Most of the problems relating to McCarthy & Stone flats go back to before 2010, when company policy was to sell off freeholds to financiers who were then able to increase service charges. These policies made some properties less attractive to buyers.

Since 2010, it has been retaining “headleases”, which is essentially a control over management in order to avoid excessive service charges. It now offers 999-year leases. This has eliminated the requirement for residents to purchase lease extensions.

Families whose parents purchased the adoption rights before 2010 are not likely to find comfort in this company’s new policies. 

Retired college lecturer Jane Weake’s in-laws, Arthur and Betty, bought a McCarthy & Stone two-bedroom apartment in Risingholme Court, Heathfield, East Sussex, for £273,950 in 2007. Betty, who was 89 years old, died soon after. Arthur, meanwhile, moved into an assisted living facility in 2012.

‘He tried to sell the property for four years, but there were no takers because the service charges were so high — £9,000 a year to Peverel [now FirstPort], the management company appointed after McCarthy & Stone had sold on the freehold,’ says Jane, 68. 

‘Arthur died in 2016, aged 103, and it took us another four years to sell the flat after that — for just £50,000. 

The service fees included subsidies for meals and cleaning that he didn’t receive during the time he had not lived in the apartment.

In total, the loss of equity and service charge bills amounted to more than £290,000 for Jane and her family.

Jane states that Jane believes Jane’s father-in-law would be devastated to learn of the loss of his planned inheritance.

Taking a big hit: This retirement apartment in Heathfield, East Sussex, cost £273,950 in 2007 but was sold last year for just £50,000 because the service charges were so high

Taking a big hit: This retirement apartment in Heathfield, East Sussex, cost £273,950 in 2007 but was sold last year for just £50,000 because the service charges were so high

Companies such as McCarthy & Stone (recently rebranded as ‘McCarthy Stone’) point out with some justification that buying into a retirement community represents more than just an investment; there is the help at hand, the company and camaraderie.

Retired maths lecturer Ken Playforth, 90, would agree — but he is angry, too, at what he sees as excessive ground rents and service charges imposed once freeholds had been sold on to outside investors.

And all the while, the value of flats in his McCarthy & Stone development in Leeds, Rosewood Court, are plummeting. His flat, which cost £199,000 in 2004, is likely to be worth a little over half that figure today.

Land Registry records show that flats in the area have done very poorly. One bought for £210,000 in 2005 sold for £125,000 in 2020. 

Another bought in 2005 for £133,000 sold for £77,000 in 2019. And two others bought in the same year for £162,000 and £188,000 sold for £100,000 and £126,000 respectively.

Ken says that Ann, my wife, died from dementia in her 70s. If Ken hadn’t lived here, it would have made things so difficult.

“It has provided me with friendship and support, as well as activities, facilities, and social life that helped me get through difficult times. It has definitely made my life easier. The financial side has been horrible. 

Ken says the loss of equity has been ‘awful’ and he regards his £450-a-year ground rent and £3,700 per annum service charges as excessive, but he has been able to set aside something to bequeath to his 69-year-old son, Michael, his five grandchildren and three great-grandchildren by making other ‘safer’ investments.

Falling Prices

It would be unfair to say that a majority of McCarthy & Stone developments have failed to retain their value (particularly recent developments) — but in less than three hours of searching on property websites, I found 20 of its retirement communities, in Dorset, Kent, Derbyshire, Tyne and Wear, the West Midlands, Gwent, Leicestershire, Merseyside, West Yorkshire, Cornwall, Gloucestershire and Greater Manchester, where the value of homes had gone down, in most cases considerably.

In Britain only 2 per cent of over-65s live in designated retirement properties, compared with 12 per cent in the U.S. and Australasia

Only 2 percent of the over 65s in Britain live in designated retirement homes, as compared to 12 per cent in America and Australasia.

These items may not all be from 2010 but they are still in use. Others were built later in life and are causing huge losses for their owners. 

Jenner Court is located in Cheltenham (Glouchshire), and was constructed in 2013. Most resales were at significant discounts. 

One bought in 2014 for £330,000 sold for just £280,000 in 2019. Other flats have incurred losses of £70,000, £50,000 and £30,000.

San Lorenzo Court in St Ives, Cornwall, also built in 2013, has seen flats sold for £102,000, £45,000 and £30,000 less than was paid for them. 

Homeowners in Somers Brook Court in Newport on the Isle of Wight have experienced reductions in sale prices of £90,000, £74,000 and £55,000 between 2014 and 2021. The prices at Saxon Grange (Chipping Campden), Gloucestershire have also dropped.

One flat, bought for £399,000 in 2013, sold for £200,000 in 2020 — a loss of just under £200,000 in seven years. 

One bought for £356,000 in 2014 sold for £225,000 in 2018, and another, bought for £365,000 in 2013, sold for £250,000 in 2021 — a 32 per cent loss in eight years.

Sir Peter Bottomley, who has campaigned for the reform of leasehold law for many years, says; ‘In the past, McCarthy & Stone had a very bad reputation that was fully deserved. 

“The firm should pay compensation for people who are the owners of properties in cases where reasonable suspicions exist about their exploitation.”

More questions 

We asked McCarthy & Stone CEO John Tonkiss how, in an economy where property is supposed to be a sound investment, he could account for these losses.

We also asked him whether the company felt inclined to apologise to families who have lost their inheritance — and whether he might consider setting up a fund to compensate them, not least because two months ago the company received £94 million in public funding from the Government house-building agency Homes England to build 1,500 affordable retirement properties.

He did not respond. Instead, he hired a public relations company to release this statement: ‘McCarthy Stone doesn’t retain any involvement at Rosewood Court in Leeds, Risingholme Court in Sussex, and Abraham Court in Oswestry. 

FirstPort, the managing agent of all McCarthy Stone developments before 2010, is responsible for them.

“In 2010, our relationship with FirstPort ended, as they were a third-party managing agency. We wanted to provide our own management services function, to maintain the high quality and standard of development. 

“We cannot comment on how these developments are managed or the charges FirstPort applies to residents.

We have been the manager and landlord for every retirement development built after 2010. 

“We have made it our mission to manage these changes for the long-term and we are happy they are seeing a positive average price increase on resale.”

FirstPort states that: “Our customers who have retired in managed retirement communities say that they feel a greater quality of living and a better sense of belonging and community. 

We charge a service fee to cover the daily running costs of the development. Customers are informed about our costs and budgets before finalizing the bill. This ensures that no surprises occur.

“If property owners have difficulty paying the fees for empty properties, we will work with them to create a payment plan until they sell or reoccupy the property.

Campaign wins 

For those who want to buy a retirement house, it isn’t all bad news. The Mail launched a campaign in 2016 calling for the end to toxic leasehold models that are used by developers.

The Leasehold Reform (Ground Rents Bill) is expected to pass shortly. It will prohibit the imposition ground rents on any new properties or retirement homes.

This sector wants to restore the image of housebuilders. ARCO’s members have adopted a code to ensure that they are transparent with buyers about the fees.

Retirement Security Ltd has 32 communities throughout the country and is an independent non-profit organization. These communities were founded by Bob Bessell (a former director for social services at Warwickshire County Council), and are managed by residents who determine their service fees. Retirement Security never charges ground rent.

Such positive stories are vital if confidence in the sector is to be reinforced — and it must be because over the next 20 years, the number of people aged over 65 in the UK is forecast to increase by more than 40 per cent, to 18 million.

There are currently 15 million unoccupied bedrooms in older persons’ homes. This could be made available for smaller families through downsizing. But before they do that, they will want to be sure that their investment — and their children’s inheritance — is safe.


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