Buying a retirement home

The United Kingdom’s population is aging rapidly and, fortunately, higher living standards mean most of us will enjoy a long and active retirement. As we grow older our housing needs often change and, if you are approaching retirement you may have already started to think about your options. Here, Sarah Trickey, 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.

Additional restrictions

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.

Additional charges

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.

For advice on buying a home for your retirement, or buying or selling a property generally, please contact Sarah Trickey on 020 8979 1131 or email s.trickey@kww.co.uk

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.   Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

Cohabitation – don’t put yourself at risk

You may recall the Supreme Court case brought last year by the couple who wanted the right to enter into a civil partnership. Rebecca Steinfeld and Charles Keidan did not want to get married; they wanted legal recognition of their relationship.

The Supreme Court judges found in their favour, decreeing that The Civil Partnership Act 2004, which allows only same-sex couples to enter into a civil partnership, was incompatible with the European Convention on Human Rights. So now, we await a change of legislation from the Government, which is unlikely to be any time soon.

At KWW, we are concerned that unmarried couples remain vulnerable as they are not offered the same protection as married couples and civil partners. Cohabiting couples often assume that moving in together creates similar rights and responsibilities as marriage (so-called ‘common-law marriage’) or absolutely no rights at all. Both beliefs are wrong.

If you are moving in together, or you are the parent of someone in that position, you should know how cohabiting affects your/their legal position and what protections there are should the relationship end or one of the cohabitees dies.

Bank of Mum and Dad

Have you heard of The Bank of Mum and Dad? It’s been around for as long as any of us can remember, but from humble beginnings – 50 quid to buy a car back in the 60s, £250 toward a wedding in the 70s, perhaps £500 toward the deposit for a flat in the 80s – it has grown out of all recognition to become what would on paper be a UK top 10 mortgage lender.

Lending from parents to help their children get on the UK property ladder will amount to a staggering £5 billion in 2016, according to Legal & General. It means the Bank of M&D will help to finance a quarter of all UK mortgage transactions this year – at an average amount of £17,500.

Without The Bank of M&D it’s hard to see how young people (and the not-so-young: the average age of a first-time buyer in the London area is 32) living in this affluent part of the UK could take their first steps on to the housing ladder.

In fact, a study out this week from another insurance giant, Aviva, forecasts that by 2025, 3.8 million people aged between 21 and 34 will be living at home with their parents – that’s a third more than at the moment.

The study also forecasts that the number of households containing two or more families is also expected to rise, from 1.5m to 2.2m. Aviva’s figures assume house prices will continue to rise t the same rate they have done over the past 10 years.

Still better than renting
At KWW, we are seeing more and more instances of generous parents providing that essential financial boost, often as much as 10% of the purchase price.
“House prices may be very high,” said one of estate agent contacts “but mortgage repayments are still less than rental payments and owning a property even with a large mortgage gives the kids an investment rather than paying out dead money.”

If you are a parent or family member looking to help your loved one into their first home, there are some important things to consider from the outset.

Gift or Loan?
It is important the family member who is offering the helping hand confirms whether the financial assistance is a gift or loan. It is sometimes difficult to distinguish between the two.
A gift is essentially where the financial assistance is given with no strings attached. This effectively means the family member assisting financially (we’ll call them the ‘donor’) does not impose any conditions on the funds being paid back and will not legally have any interest in the property.

So if the donor might want their money back on the future, this may not be the route to choose.

A loan is where the financial assistance is repayable. If the money is repayable, the donor should first consider how the money is repayable (for example, how often, over what term and will there be interest on the loan) and second, whether a charge needs to be registered against the house to protect the donor’s interest.

A charge is a legal document which will set out the terms of the loan. KWW can help you with preparing and registering the charge with the Land Registry on completion. Where a charge is registered against the property, consent would be required by the charge holder (the donor) in order to remortgage or sell the property in the future.

If, however, the purchase is also going to be with the aid of a High Street mortgage, consent is required from that lender to register a second charge and is often not granted for fear of the borrower being overextended financially.

A registered charge will protect the interests of the donor in the event of future family disputes, marriage or family breakdown/divorce.

Joint ownership
Parents or family members often assist with mortgage applications, helping to increase the amount mortgage companies are prepared to lend. In this situation the donor usually becomes a joint owner of the property.

There are two ways you can own a property jointly in England & Wales – as joint tenants or tenants in common.

As joint tenants, in the event of the death of one of the owners, the property will transfer to the surviving owner regardless of what it says in the deceased owner’s will or under the rules of intestacy.

With tenancy in common, on the death of one of the owners, the share does not automatically pass to the surviving owner but according to any valid will or otherwise the rules of intestacy. Because the shares are distinct, the tenants in common can hold unequal shares in the property. KWW can prepare a Declaration of Trust, which is the legal document that sets out how those unequal shares are held by each owner.
Another important thing to consider if you are buying a property with your child or a family member is whether either of you is likely to own another property anywhere else in the world at some point in time. If this is the case, you may be liable to pay the higher rate Stamp Duty Land Tax on completion, being a second home owner.

If you are purchasing jointly with a mortgage, you must understand that you are equally responsible for full repayment of the loan, not just a share of it, regardless of how you jointly own the property.

So, using an example, if mum and dad are purchasing a property jointly with their son with a mortgage and the son is to live at the property and repay the mortgage, if he fails to make the repayments on the mortgage then his parents are equally responsible for the full repayment, including the balance of the loan (not just a proportion of it).

As house prices in the UK continue to rise, we expect to see more and more instances of Bank of Mum and Dad stepping in to help.

We’re always pleased to see families coming together to help dreams come true but we would urge a great deal of thought to go into the decision-making process and the appropriate legal steps to protect everyone’s peace of mind.