Equity release affects the overall value of your property. By releasing equity, there is less money tied up in the home and therefore less money in the home than there would be to pay for long-term care when the property is sold.
With care costs in the headlines and hotly debated in parliament, we have answered frequently asked questions about equity release and paying for care.
Will I have to pay for care?
In our ageing population, covering the costs of care is an increasingly important and somewhat controversial issue. More of us can expect to live into old age and require long-term care. This comes at a cost and depending on your personal circumstances, you may need to cover some of this cost from your personal finances.
The number of adults aged 85 years and older requiring constant care is expected to almost double to 446,000 in England over the next 20 years, according to a 2018 report from Newcastle University’s Institute for Ageing. The number of over-65s needing 24-hour care is expected to rise by more than a third, to one million, in 2035 according to the same study.
The government introduced a new cap in November 2021. Read more about government social care changes including care here.
How much does care cost?
Care costs vary geographically and depending on the provider used. As a rough guide, according to Age UK, costs average around £600 a week for a care home and over £800 a week in a nursing home. According to a 2017 report from Money Advice Service, a care worker at home will cost around £15 an hour. That is about £30,000 + a year for full time “support” and £150,000 + a year for full time care.
The new cap proposed by the government exclude means-tested council support payments from a new £86,000 “lifetime limit” on costs.
This cap will cover fees for personal care such as assistance with washing and dressing. However it will not cover “living costs” like care home fees, food or utility bills.
From October 2023:
- People with assets of less than £20,000 will not have to pay anything from these assets towards care fees – although they might have to pay from their income if they have one.
- For people with more than £100,000 in assets – the value of their home, any savings or other assets will not get any financial help from the council.
- For those in between with assets from £20,000 to £100,000 will qualify for council help. However they will have to pay £86,000 to reach the cap.
Can you fund home care using equity release?
Some people choose to release the equity from their home using a Lifetime Mortgage to stay in their home and receive care.
You could use this method to meet your care costs, but only if you want care in your own home. You could also make home improvements or modifications to make your home safer and easier to access.
If you fund your care in this way, the money you borrow is only repaid when your property is sold after you pass away, or move out permanently into long-term care.
An equity release specialist can help you to decide if this is a suitable solution for you or if you should consider other options.
Long Term Care for someone with a Lifetime Mortgage
If you have a Lifetime Mortgage and further down the line you need to move into long term care, the loan is repaid from the sale of your home.
It is important to understand that you cannot release equity in your home in order to avoid having to pay care home fees.
What is “Deprivation of Assets”?
Local authorities means test in order to assess how much of the care cost an individual must pay and if they are eligible for any support.
However, the local authority can make you pay for care if they feel that you have tried to avoid paying for it yourself by taking money out of the value of your home. That’s deprivation of assets.
You will need to show that you released equity for legitimate reasons.
Proving that you released equity for legitimate reasons
Removing funds to avoid care home fees is called “deprivation of assets” and it can mean the council assesses you as liable for your care fees whether you’ve spent the money or given it away.
Anyone taking out an equity release mortgage should keep documentation showing why they decided to do it, so they can show the local authority that it was for a legitimate reason.
It is important to discuss the options with financial experts and your family, as this will have an impact on your estate and what you may want to leave to children and grandchildren. It is a very complex area and you do need to seek advice.
Have you checked how much equity you may be able to release? Use our equity release calculator.
Or contact us for an appointment with an adviser to assess your circumstances and discuss your options.
