The retirement home scandal that is wiping out life savings

When Kathleen Smith died at the grand old age of 90, she would have been proud to leave behind a successful son, four beautiful grandchildren and a six-figure inheritance to make life for them that little bit 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

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.

But she hadn’t. Like tens of thousands of other retirees, she had bought a flat sold by Britain’s biggest retirement housebuilder, McCarthy & Stone. ‘We found that nobody would touch this kind of property with a bargepole,’ says Michael, 73. 

‘The service charges are so high and the market had been flooded with homes that were hyped when they were first sold at prices that must have been inflated.

‘All over the country, people are losing huge sums of money as they find out that the flat their parents bought as an investment has plummeted in value.’

Retirement housing has not been as widely embraced in the UK as in other countries, not least because of reputational problems caused by leasehold sales models that resulted in buyers having ever-increasing service charges foisted on them.

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

Leasehold models mean that while your lease gives you a fixed length of time to live in your flat, the building itself is owned by a freeholder. 

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. Rights to ground rents are usually sold off too though these are often fixed 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. These fees are reviewed every year.

There are often age restrictions on retirement properties, which can make them more difficult to sell. 

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 quite right to be sceptical. Retirement housing has been a snake pit of rip-off practices and absolutely abysmal resale values.

‘Buying a retirement flat can be the single worst residential property investment one can make in the UK.’ He says falls in value of up to 70 per cent are not uncommon.

Our findings come as older homeowners are under pressure to downsize to free up family homes. 

Housing Minister Chris Pincher last week told the House of Lords that almost four in ten properties are ‘under-occupied’ and could be better used by younger families with children. 

And he said the Government was keen to encourage housebuilders to create more developments suitable for pensioners.

Lease letdown

According to Mr O’Kelly, the main reason for often dire resale values across the sector is 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

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

Future owners will have to pay to extend their lease, usually before it drops below 80 years, and this can cost tens of thousands of pounds. 

‘Add to this predatory management fees through the service charges and the sale of these flats can be problematic,’ adds Mr O’Kelly.

McCarthy & Stone was founded by John McCarthy and Bill Stone in 1963. By 1996, the company had cornered 70 per cent of the retirement market. 

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. 

On its website, the firm says it has built 58,000 retirement homes in 1,300 developments. 

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.

Big losses 

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. This, in turn, made many properties unattractive to potential buyers.

After 2010, the company began retaining ‘headleases’, which means it controls management to prevent excessive service charges being imposed. And it now sells 999-year leases, a practice that has ended the need for residents to pay for lease extensions.

But the company’s improved policies post-2010 provide scant comfort for families whose parents bought before they were adopted. 

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 died shortly afterwards aged 89, and in 2012, Arthur moved into a care home.

‘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. 

For the four years he was no longer living in the flat, and the four years after his death, subsidies on meals he wasn’t eating, and cleaning he wasn’t receiving were still included in the service charges.’

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

‘My father-in-law would have been devastated if he had known that this is what happened to the inheritance he had planned for us,’ says Jane.

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.

According to Land Registry records, flats there have performed very badly. 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.

‘My wife, Ann, had dementia and died in her late 70s,’ says Ken, ‘and if I hadn’t been living here, things would have been so much more difficult for me.

‘There is the support and friendship, the activity, facilities and social life, and that got me through some hard times. So, yes, I would say it has improved my life enormously. But the financial side of things has been disastrous.’ 

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

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

Not all of these dated from before 2010. Some built in later years are also generating big resale losses for owners and their families. 

Among them is Jenner Court in Cheltenham, Gloucestershire, built in 2013, where most resales have been at considerable reductions. 

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. And at Saxon Grange in Chipping Campden, Gloucestershire, prices have fallen, too.

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 put in funds to compensate people who own properties where there are reasonable grounds to suspect 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 reply. Instead, he got a public relations firm to issue this statement: ‘McCarthy Stone does not retain any involvement with Rosewood Court, Leeds; Risingholme Court, Sussex; Abraham Court, Oswestry. 

All McCarthy Stone developments from before 2010 are under FirstPort’s care as the managing agent.

‘In 2010, we ended our relationship with FirstPort, who are a third-party managing agent, because we wanted to deliver our own management services function to ensure the level of service and quality of the development could be kept at a very high standard. 

‘We’re therefore unable to comment on how those developments are run or the charges that are applied by FirstPort to the residents.

‘Since 2010, we operate and are the managing agent and landlord on all retirement developments built since then. 

‘We are committed to managing these developments for the long term and are pleased they see a positive average increase in price on resale.’

FirstPort says: ‘Our retirement customers tell us that the quality of life and the sense of community and companionship that comes from living in a managed retirement development has enhanced their lives greatly. 

The service charge covers the day-to-day running costs of a development, and we clearly explain our charges to customers and share budgets with them before the final bill is agreed so that there are no surprise costs.

‘If owners are struggling to pay the service charges for an empty property, we can of course work with them to put a payment plan in place until the property is sold or reoccupied.’

Campaign win 

It isn’t all bad news for people considering buying a retirement home. The Mail led a campaign this year calling on the Government to end toxic leasehold models used by developers.

As a result, the Leasehold Reform (Ground Rents) Bill is shortly expected to be passed, and that will ban the imposition of ground rents on new-build properties, including retirement homes.

The sector is keen to improve an image tarnished by the housebuilder model. Members of ARCO (Associated Retirement Community Operators) have set up a code of conduct that requires them to be 100 per cent transparent about fees before buyers put pen to paper.

There are also independent not-for-profit organisations such as Retirement Security Ltd, which has 32 communities across the country. Set up by Bob Bessell, a former director of social services for Warwickshire County Council, these communities are run by residents who set their own service charges. Retirement Security has never charged 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.

At the moment, there are 15 million unused bedrooms in the homes of older people, which could be freed up for younger families by downsizing. But before they do that, they will want to be sure that their investment — and their children’s inheritance — is safe.