DO YOU HAVE TO SELL YOUR HOME TO PAY FOR CARE?
It’s not always necessary to sell your home to fund long-term care. If you choose to receive in-home care, or if a spouse or dependent relative remains living in your home, you will not be forced to sell. Be wary of the lifetime-mortgage ‘trap’ – these equity-release schemes often state that you must sell your property immediately if you go into residential care. It’s vital to seek expert financial advice before making any big decisions regarding your property or paying for a care home.
The majority of older people in the UK who need long-term care have to fund some or all of it themselves. And since paying for care can be very costly – with average care-home fees somewhere around £35,000 a year, and often much higher – it’s no surprise that many will immediately think they need to sell their property to cover the costs, as this is frequently their most valuable asset.
However, as Ros Clarke, a Long-term Care Consultant at St. James's Place, says, it doesn’t necessarily have to be that way. “A lot of self-funders make assumptions about a lot of things, and their property needing to be sold is one of them,” she says. “But there are many different scenarios where that isn’t the case.”
If you or a loved one needs long-term care, here’s a rundown of the most important things to be aware of when working out how your property fits into the funding equation.
How to avoid selling your house to pay for care
If you have assets of more than £23,250 in England and Northern Ireland, £28,750 in Scotland or £50,000 in Wales, your local authority will not normally fund your long-term care. What’s more, the value of your home will usually be included in this calculation.
However, if one of the following circumstances applies, your property will be completely disregarded:
- If you remain living in the property and receive care in your own home.
- If you move into residential care but have a spouse or partner who continues to live in the property.
- If you have an ‘eligible relative’ who will continue living in the property – for example, another relative over the age of 60, dependent children under the age of 16 or a dependent relative with a disability.
Any of these will mean you can keep hold of your home if you want to.
If you move into residential care but don’t fall into one of the categories above, your local authority should offer you a deferred-payment agreement if the total value of your other assets is below the figures mentioned above. This is an arrangement whereby the council effectively lends you the cost of your care-home fees at a very low variable interest rate (currently less than 1%) and you repay the loan when the property is sold.
The good news here is that there is no time limit on this agreement, so you can wait as long as you like to sell. This can enable you to keep your home until you die, for example, or wait until market conditions improve if there’s a dip in the property market.
There is also the option of letting your property to provide an income to pay for your care-home fees. “We’re seeing a lot more clients doing this,” says Paul Johnson, Head of Mortgages at St. James's Place. “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 eventually 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, says Johnson, is because they have taken out a lifetime mortgage. That’s an agreement with a mortgage lender who 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 such mortgages in order to release the equity tied up in their homes, so they can spend it during their retirement or pass it on to their children or grandchildren, without having to move or wait until they die.
A big problem, however, is that most lifetime-mortgage agreements state that if you move into residential care, the property must be sold within a certain amount of time – often just three months. This, says Johnson, can wreak havoc on people’s finances – for example, because they’re forced to sell when the housing market is weak, or because converting the value of the property to cash can 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, for example, 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.
“The important thing in all cases,” says Johnson, “is to take advice before acting, so you can make sure you have a choice in the matter, as some of these situations can be really difficult to unravel once the agreements are in place.”
Seek advice before making any big decisions
Clarke points out that, according to St. James's Place’s own estimates, only around 5% of people funding their own care speak to a financial adviser. However, the benefits of expert advice from a fully qualified long-term care adviser are clear, she says.
“An adviser with the necessary later-life qualifications can take a 360-degree view of your circumstances and finances, and help to make sure you structure all your assets in the best way to suit your wishes for now and in the future. For example, if there are assets other than the property, we would usually look at using those in the first instance, if at all possible.
“What’s more,” she adds, “the financial-advice part is often easy. It’s usually the bit before that – the point of crisis when you realise you need care – that’s harder. If you can speak as soon as possible to somebody who understands the full long-term care journey, as our specially trained St. James's Place Partners do, it can help to give you peace of mind and take the pressure off when you need it most.”