It’s one of the scary things about growing old, isn’t it? We’re all living longer, thanks to medical science but does that mean more of us are going to end up in a care home, struggling to find the means to pay for it?
A year in a care home can cost more than £50,000. This means some families are accumulating huge bills. If you have assets of more than £23,250 (slightly more in Scotland and Wales), the law states that you must fund all your care costs yourself, without any help from the Local Authority. This figure includes property, so if you have your own home, you won’t be eligible for any support.
As a result, many families are finding themselves facing a significant gap when it comes to funding care for their loved ones. This added financial burden comes at what can often be a sad and stressful time anyway.
One way some families are funding the cost of care is through the value of their home; equity release or a lifetime mortgage, as it is sometimes known. This allows anyone over 55 to borrow against the value of their home. You can draw money to about 50% of your property’s value and there are no monthly repayments. The interest rolls up at a compound rate until the person borrowing the amount dies. To protect you, the total debt can never exceed the value of your home and will be cleared from the eventual sale of the property.
It’s worth noting that interest rates tend to be higher than standard mortgages but there are no affordability checks or repayment plans. You can decide whether you take the money as a lump sum or in stages. Its also worth highlighting that releasing equity from your home may impact upon your tax position as well as your entitlement to state benefits. It will also reduce the amount you are able to leave as an inheritance.
There are different ways of using equity release. Most people would prefer to stay in their own home for as long as possible rather than move into a home, so one option can be to use the money to make home improvements and adapt the property to their needs as they grow older. Installing a wet room or a moving a bathroom downstairs, for example, can often be practical solutions.
It is more difficult to use equity release to fund care home costs. In fact, according to a Daily Telegraph survey in 2017, only 1% of respondents gave that as a reason, compared with debt repayment, inheritance gifts, home improvements or to boost disposable income. The complexity stems from the fact that the repayment of the loan is often triggered by the very act of someone moving into long-term care. If one half of a couple, however, needed to go into a care home, it does mean that the property would not need to be sold to repay the debt until their partner died or moved into the home with them.
It’s obviously difficult to predict the length of someone’s stay in a care home so equity release may not always be a straightforward decision but, in some cases, it can be a useful option for quick, upfront funding.