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Everything you need to know about using property to fund long-term care

Research published by Age UK has found that, in the next 20 years, the number of individuals with complex care needs is projected to increase. As more people reach the ages of 85 and greater, these individuals will have higher levels of dependency, dementia, and comorbidity.

And, as the population ages and people’s care needs become more complex, the need for social care services is set to intensify.

Figures show that 21% of older people in England receive the help they need for care needs from their local authority/council while 13% receive the help they need from privately funded sources.

As few people will be able to pay the cost of long-term care from their day-to-day income, it’s important to think about how to fund the cost of care.

For many, property is likely to provide some of the funding. Here, we look at how you can use your home to fund long-term care, and how much care your home is likely to provide you with.

Why you might have to pay for your long-term care

There are three reasons why you may end up footing the bill for your long-term care:

  • You don’t qualify for local authority funding – currently, if your assets are more than £23,250 (£28,000 in Scotland and £50,000 in Wales), you will have to pay for your own care
  • You have to make up a fees shortfall while the local authority is funding your care during a deferred payment agreement period
  • You want to improve your care at home by paying more

Using the value in your home to fund long-term care

By the time you need to pay for long-term care, you will probably have some value tied up in your home.

Equity release

If you plan to receive care at home and do not qualify for local authority support, you could use an equity release scheme to fund your care. You can take out a loan secured against your property and take the funds as a lump sum or draw down smaller amounts over time.

Unlike conventional mortgages, you don’t make monthly repayments. Interest rolls up and the loan plus interest is repaid when the property is eventually sold.

Bear in mind that if you think you’ll need to move into residential care, then equity release probably won’t be suitable. This is because equity release arrangements require you to repay the loan in full if you move permanently into a care home.

Downsizing

Selling your existing home and buying a smaller, less expensive one could free up money to pay for your care costs. Downsizing also means you can choose to live in a property that might be better suited to your present and future needs.

Apart from a smaller house, you could consider other options, such as a bungalow, retirement property or sheltered and extra care housing.

Money raised from downsizing could be used to purchase a Care Annuity (also known as an Immediate Needs Annuity). This is an insurance policy that provides a regular income to pay for care in exchange for an upfront lump sum.

You buy such an Annuity at the point of need and it is designed to cover the shortfall between your income and the cost of long-term care. Proceeds are paid tax-free directly to the care provider.

How much care your home could pay for

With billions of pounds tied up in the value of retired people’s homes, property is expected to be used to make up a significant proportion of an individual’s social care funding in later life, according to Just Group.

If you’re planning to use your home to fund long-term care, it could be useful to know just exactly how much care your property will provide.

A new study by retirement services provider has analysed the regional variations in care and property costs across the UK to see how many years of care your property could buy.

As there are substantial regional variations in both property prices and the cost of care, the amount of care your home will buy will be partly determined by where you live.

For example, Land Registry data shows that the average house price in the South West (£253,752) is substantially less than in London (£463,283).

Also, according to a 2018 report from LaingBuisson’s, the cost of residential care differs by more than £200 a week (£11,180 a year) throughout the country. The lowest average weekly charges are in the North West (£523 a week) and the highest in the South East at £738.

Nursing care costs vary even more, costing £688 a week in the North East compared to £1,039 in the South East and £1,001 in London.

The Just Group research found the average house price of £243,128 in the UK could pay for 7.52 years of residential care and 5.46 years of nursing care.

The average house in the South West, priced at £253,752, could fund 7.31 years of residential and 5 years of nursing care.

Stephen Lowe, Group Communications Director at Just Group, said: “Most working people prioritise buying a house and it is often their most valuable asset. Under current rules, that value has a crucial role in helping people afford care they might need in the future.

“It provides peace of mind to put in place your own plans. That will mean talking with friends and family about what you would like to happen… a specialist financial adviser can also provide invaluable help.

“These conversations should help with working out how to meet the cost whilst still retaining some financial control,” he added.

Get in touch

If you want to build a financial plan that helps you secure your future, please get in touch. Email hello@sovereign-ifa.co.uk or call 01454 416 653.

 

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