BLOG: Working out how your property fits into the care home funding equation
The majority of older people who need long-term care have to fund some or all of it themselves which can be very costly. But your first thought needn’t be to sell your home. Here’s what you need to know.
Paying for care can be very costly, with average care home fees somewhere around £34,000 a year, and often much higher depending on where it is in the country.
With these steep costs on the horizon, many are worried about how this will impact their inheritance. One in two people are concerned they will need to use money they intended to pass on to fund their own care, Meanwhile, a third of people are concerned about using this money to fund their parents’ care.
It’s therefore no surprise that many will immediately think they need to sell their property – often the most valuable asset – to cover costs. However, it doesn’t necessarily have to be that way. If you or a loved one needs long-term care, these are the most important things to be aware of when working out how your property fits into the funding equation.
Do you have to sell your house to pay for care?
If you have assets of more than £23,250 in England and Northern Ireland, £29,750 in Scotland or £50,000 in Wales, your local authority will not normally fund your long-term care. The value of your home will usually be included in this calculation so it’s worth bearing that in mind.
However, if you receive care in your home, move into residential care but have a spouse/partner who lives in your home or you have an ‘eligible relative’ who will continue to live in your home (e.g., a relative over the age of 60, a dependant child under the age of 16 or a dependant relative with a disability), your property will be completely disregarded, and you can keep hold of your home if you want to.
If you move into residential care but don’t fall into one of these categories, your local authority should offer you a deferred-payment agreement if the total value of your other assets is below the figures quoted. This means the council effectively lends you the cost of your care home fees at a low variable interest rate (currently less than 1%) and you repay the loan when the property is sold.
There’s no time limit on this agreement, so you can wait as long as you like to sell. This means you can keep your home until you die or wait until market conditions improve if there’s a dip in the property market.
More people are letting their properties to provide an income to pay for their care home fees. It’s easy to find a property management company to handle everything for you, and you can use the rental income to support the cost of your care home. And then, of course, you protect the asset to pass on to your loved ones.
Avoiding the lifetime mortgage ‘trap’
One of the most common reasons people are forced to sell their home to pay for care, is because they have taken out a lifetime mortgage.
A lifetime mortgage is where a mortgage lender loans you a lump sum against the value of your property, which is then repaid with interest when you die and/or your property is sold. Many people take out these mortgages to release the equity tied up in their homes, to help fund retirement or pass it on to their children or grandchildren, without having to move or wait until they die.
The problem is that lifetime mortgage agreements state that if you move into residential care, the property must be sold within a certain amount of time – often twelve months. This can wreak havoc on people’s finances because they can be forced to sell when the housing market is weak. Converting the value of the property to cash can also create a greater Inheritance Tax liability if they die.
Nonetheless, a lifetime mortgage can still be a good option for some people. In that case, it’s vital to choose the right mortgage provider, as some will allow you to avoid selling your home by switching the mortgage to a buy-to-let version so you can continue to own the property and also potentially benefit from the rental income.
Selling your parents’ house to pay for care
Many adult children find themselves in the difficult position of having to sell their parents’ homes to pay for their care. If one of your parents is incapacitated due to Alzheimer’s disease for example, you may need to consider selling the home to cover their long-term care costs. You can only do this if you have been given Power of Attorney or have been appointed by the relevant court to act as a deputy (allowing you to act on their behalf).
Take financial advice early
The important thing is to take advice before acting, so you can make sure you have a choice, as some of these situations can be really difficult to unravel once the agreements are in place. However, only around 5% of people funding their own care speak to a financial adviser.
An adviser with the necessary later-life qualifications can take a 360-degree view of your circumstances and finances and help make sure you structure all your assets in the best way to suit your wishes for now and in the future. It can also give you peace of mind and take the pressure off when you need it most.
Paul Johnson is head of mortgages at St. James’s Place