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'My flat was £161,950 in 2007 – now I'm offered just £28,000'

Patrick Collinson

When Tony Cross’s father was the first buyer at a McCarthy & Stone retirement development in Folkestone, Kent, he thought he was getting a bargain. The sales rep offered him an “early bird” discount, knocking £3,000 off the cost of a one-bed flat, selling it to him for £161,950 in 2007. But since inheriting it four years ago, Cross has been unable to find a buyer, and is considering selling it to a “buy it now” company – for just £28,000.

How could a relatively newly-built apartment in good condition, with more than 100 years remaining on the lease, collapse in value so spectacularly? The average apartment in Folkestone has gone up in price from £137,000 to £162,000 since 2007 – so why is the McCarthy & Stone flat potentially going for less than the price of a garage in the seaside town?

McCarthy & Stone is the biggest builder of retirement flats in Britain, with 1,200 developments across the country, and sales of about £700m a year, but has faced repeated accusations of poor resale values.

Perhaps even more shocking is the council tax bill on Cross’s one-bed flat, which has spiralled to £3,000 this year and is heading to £4,500 next year – or more than the tax on a multimillion-pound mansion in Mayfair.

When Cross first inherited the flat in 2015, the estate agents put it on the market for £143,000. But there wasn’t a sniff of interest. It was reduced to £135,000, then £120,000. Cross changed agents seven times. The valuation kept falling – to £99,000, then £89,000, then £69,000, then £59,000. But even at this price, he can’t find a buyer.

Why not? Cross blames what he describes as the “punitive” service charge on the one-bed flat. Last year the charge was £562 every month – equal to £6,744 a year, although this year it dropped back to £519 a month. On top of that, the ground rent is a further £415 a year. In other words, a retired person could be paying nearly all their state pension in service and ground rent charges.

“The feedback from the selling agents is that the high cost of service charges puts people off buying,” says Cross.

While the flat has been on the market, Cross has been liable for the service charge, ground rent and council tax, shelling out £18,000 so far. “I’m going to go bankrupt at this rate,” he says. “In total it’s costing me £900 a month to keep. I’ve got my own home to pay for, and you can’t run two houses on a normal wage. It’s been one huge money pit. One of the buy-it-now companies has offered me as little as £15,000 for it. The stress has been so much, and to be honest it’s made me so stroppy and moody, it’s cost me my relationship too.”

Cross says that when he researched Land Registry figures, he found that other flats in the development had been sold for £99,000 when new. “So much for the early bird discount,” he says.

Cross is not alone in finding that retirement flats can be a poor investment. Figures prepared for the BBC in 2017 by the Elderly Accommodation Counsel, a charity, found that about half of new-build retirement homes sold during a 10-year period were later resold at a loss. But more recent research from the EAC showed that retirement flats built since 2009 have increased their value upon resale.

That’s no comfort for many who bought in Cross’s development, Laurel Court. A flat bought in April 2010 for £150,000 sold for £75,000 last year. Another purchased for £151,000 in November 2009 sold for £105,000 in April this year. A two-bed flat in the block is currently listed on Rightmove at £45,000, and is the cheapest property for sale in the whole of Folkestone. The agent says it is in “impeccable condition” but warns that service charges apply. When Guardian Money checked this week, there were 18 listings on Rightmove of flats in Laurel Court, many with “reduced” stickers.

Of the other flats going cheap in Folkestone, many are in Pleydell Court – another McCarthy & Stone development. The most recent sale there was for £80,000, a £15,000 fall from the price it sold for 11 years earlier.

One problem is the very limited range of people allowed to buy. Like most retirement developments, it only permits couples aged over 55 or single people aged over 60. What’s more, mainstream mortgage firms won’t lend against these types of retirement properties.

“They are really lovely, immaculate flats, with a lovely communal lounge,” said one Folkestone estate agent contacted by Guardian Money. “But people are just very wary about the service charges, which on the two-bedders are around £7,500 a year.”

Council tax has turned into a nightmare for Cross. He showed Guardian Money his latest bill from Folkestone and Hythe council. Although the one-bed flat is only a band B property – one band above the lowest valuation – this year’s bill is £2,969.44. Next year it will rise to nearly £4,500.

Cross has been caught by the empty homes premium, an initiative designed to bring longstanding empty homes back into use. It allows councils in England to double the council tax on properties empty for two years, and triple it if they have been empty for five.

As Cross’s home has sat on the market since 2015, the local council has applied the doubling in tax, and can triple it next year. Cross says the flat was initially left empty after his father had to go into special care before he died. He says he can’t be the only person in a situation to have inherited a retirement flat and not left it empty out of choice but because they can’t find a buyer. Even if he let it out, he says he has been advised the rent would be about £600 a month at most, leaving him with an ongoing loss every month.

When Cross does find a buyer, there is a final sting in the tail – he will have to give the freeholder a 2% share of the proceeds. He says he has also been asked for £324 for a “seller’s pack”.

When McCarthy & Stone built the development, it sold the flats as leasehold and retained the freehold. But shortly after it sold the freehold to a company called Fairhold, a British Virgin Islands-based group, which collects the ground rent. Cross pays the service charge to FirstPort, a property management company controlled by two private equity funds.

Initially Cross says the service charge was high but not outlandish. It was around £350 a month at first, he says, and include a 24-hour warden, pull-cords in the flat to seek assistance, cleaning, and the communal lounge. But the shift upwards to more than £500 a month appears to have made it too high for potential buyers to swallow.

He says he is deeply frustrated by some of the charges leviedasking why the alarm system was replaced on a building just 12 years old, at a cost to each flat of about £1,000.

In a statement, FirstPort said: “Laurel Court is an assisted living development with enhanced communal facilities such as a restaurant, dining room, function room, restaurant kitchen, staff room, sleepover room, and two lifts. This does mean that it requires a more comprehensive level of servicing and the service charge is higher than it would be on a non-assisted living development.

“We clearly explain our charges to customers and share budgets with them before the final bill is agreed so that we are completely transparent and there are no surprise costs.”

“We know our customers have the peace of mind that day-to-day home maintenance tasks are taken care of, like mowing the lawn, as well as the bigger jobs, like refurbishing the lifts. Having an estates manager and other on-site staff available 24/7 in an assisted living development offers safety and security that is really valued by our residents and their families. Our customers tell us that the quality of life and the sense of community and companionship that comes from living in a communal, managed development has enhanced their lives greatly.”

McCarthy & Stone said that since 2010 it has run its own management service on new sites and no longer sells the freeholds to other parties.

“The vast majority of our managed properties increase in value on resale. To help improve this further, we launched a new in-house resales operation in 2017 to support our customers and their families when they come to sell their property. We urge anyone seeking to resell their property to use our in-house service.”

“The value of retirement housing is not just financial. Retirement communities help to reduce the burden of maintenance, increase safety and security for the elderly and reduce loneliness. Nine out of 10 of our customers say moving to one of our properties improves their quality of life.”

However, Cross says McCarthy & Stone rejected him when he asked to market his property through its resale service.

Names have been changed