Traditionally, property journeys follow a familiar path — beginning with renting, progressing to homeownership, and ultimately downsizing during retirement to free up capital for a smoother lifestyle.

While most downsizers tend to purchase their retirement homes, many shy away from renting due to concerns that it may diminish their estate and eliminate assets meant for heirs.

However, renting in retirement can present an ideal scenario for some individuals, offering flexibility for relocation, minimizing buying and selling costs, alleviating property maintenance concerns, and potentially providing additional financial resources.

For retirees wishing to reside in retirement communities, renting might be a more prudent choice than purchasing. This is especially true considering various challenges, such as high service fees and difficult resale conditions tied to these types of properties. While renting may not be suitable if ongoing rent cannot be supported by retirement income and savings, many find it offers a refreshing break from homeownership.

We spoke to several retirees who made the shift to renting and are satisfied with their decision.

“No More Maintenance Stress”

The Johnsons — Norman, 83, and Rita, 82 (aliases used) — decided to sell their family home in rural Somerset 18 months ago and relocated to a two-bedroom bungalow in Wells, leased from a private landlord planning to use it as a future retirement home.

Seeking a manageable living situation while reducing their travel, they found financial advantages to renting. Rita stated, “We opted to rent instead of buy to invest the sale proceeds and create an income to cover potential future care expenses.”

“We wanted quick access to funds, avoiding a rushed sale due to our age. Moreover, we desired to be free from maintenance responsibilities,” Rita emphasized.

Their rent is covered by pension and investment income, and they report satisfaction with their new lifestyle. “For minor maintenance issues, our landlord responds promptly. We live centrally and walk often, benefiting our health,” Rita shared.

An issue to consider when renting is tenancy insecurity, as assured shorthold tenancies are prevalent and typically last six months to a year, after which the landlord can reclaim the property with a two-month notice. In contrast, assured tenancies are less common but offer greater security post-initial term.

The Johnsons’ assured shorthold was for one year and has transitioned to a rolling contract. “We feel relatively secure as our landlord intends to occupy the property himself in about ten years. However, this situation could change, and we might be asked to vacate,” Rita acknowledged.

“A New Chapter”

Many retirees select retirement developments featuring independent living apartments alongside communal amenities and activities. Increasingly, these properties provide options for renting or shared ownership.

According to Nick Samuels from McCarthy Stone, which manages 543 retirement developments across the UK, “Research indicates that around 50% of our potential clients are open to renting. A significant number are current homeowners, highlighting strong interest in rental options.”

McCarthy Stone manages accommodations for over 21,500 individuals, with around 1,000 of these being rental units. As a managing agent and landlord, they offer some stability, reducing unexpected relocation risks for tenants.

The majority of McCarthy Stone tenants in England hold assured tenancy agreements with a minimum 12-month duration and two months’ notice. In Wales, periodic contracts are utilized, which do not require a minimum term.

The organization also provides care and support services to facilitate independent living as long as possible. This arrangement has worked well for Jean Baxter, 95, who transitioned from her detached four-bedroom house in Yorkshire to a two-bedroom flat in a McCarthy Stone property in Tunbridge Wells, Kent, to be closer to her family. The development includes tailored care services, from appointment assistance to meal preparation and personal hygiene support.

Baxter remarked, “I opted to rent for the immediate flexibility it offered, avoiding the hassle of a property sale later on.” She has developed friendships, remains active, and enjoys regular visits from her family. “This move truly has revitalized my life,” she expressed.

Understanding the Costs

Lauren Macpherson from the retirement lettings agency Girlings noted that retirement property service charges typically range from £800 to £900 monthly; however, these are the landlord’s expense when the property is rented, although they may be reflected in the rent.

According to Samuels, “Tenants in retirement communities typically make a single monthly payment encompassing service charges and maintenance.” However, they must also account for council tax and utility bills.

McCarthy Stone suggested that standard rents for one-bedroom units in retirement communities usually vary between £1,370 and £2,350 monthly, while two-bedroom units range from £2,040 to £2,870, with extra care support incurring additional costs.

The Retirement Villages Group operates 16 sites across the UK, featuring rental properties priced from £2,250 to £4,200 monthly.

More exclusive, Audley Villages has two-bedroom apartments available at their Cooper’s Hill development in Surrey that rent for between £5,000 and £6,000 monthly.

The Hawthorns retirement living firm employs a distinct model where all residents share the same rental agreement without owner-occupiers. Their monthly fee covers rent, utilities, council tax, internet, cleaning services, meals, and some outings.

Paul Tripney from the Hawthorns in Braintree, Essex, explained that the rental agreement’s flexibility offers residents stability without requiring a six-month commitment; they can provide 30 days’ notice at any time. Prior to the pandemic, residents spent an average duration of around three and a half years. Rent for a studio flat starts around £2,000 per month; a one-bedroom unit begins at £2,950 and two-bedroom flats at £3,450.

It’s worth noting that not all rental properties in retirement developments are listed by the developer. Macpherson highlighted that 90% of the properties managed by Girlings are owned by “accidental landlords,” typically family members who have inherited properties they are hesitant to sell in a slow market.

Challenges in Selling Retirement Properties

Prospective buyers of retirement properties often encounter obstacles when attempting to sell them. Prices tend to remain stagnant in comparison to the broader market, partly due to a limited buyer pool. Typically, the minimum age to purchase is 55, with the average resident age ranging from 85 to 87, according to Tripney.

Lofty service fees and significant exit charges can deter potential buyers; some developers impose charges exceeding 20% of the selling price. For instance, Audley has a “deferred management charge” that may reach up to 28% of either the final sales price or the market value, whichever is higher.

This reality makes renting a retirement property a practical solution for those who accidentally inherit such properties, benefitting tenants. Macpherson stated, “Landlords are responsible for service charges and ground rent along with maintenance costs, generally aiming to break even rather than profiting. Tenancies are established for a minimum duration of 24 months, and we encourage landlords to regard the rental situation as a long-term arrangement instead of a temporary measure.”

Considerations Regarding Inheritance

If the idea of renting during retirement intrigues you, there are some potential downsides to keep in mind. While having no home of your own provides flexibility, it also eliminates the opportunity to gain from rising property values, as well as the inheritance of a property for your heirs.

Although escaping mortgage rates can be beneficial, you might face rent increases and the possibility of needing to move.

Shona Barr from Progeny, a financial advisory firm, warned, “The emotional implications of relinquishing homeownership later in life should be taken into account.”

“Assess these factors carefully to ensure your decision aligns with your retirement objectives and long-term financial sustainability,” she concluded.