The cost of care is a growing concern, making headlines as people question how they will afford care in the future if it is required, and what this might look like for their current and future finances.
No one should have to go without essential care due to a lack of funds. That’s why planning ahead is crucial. Our equity release specialists have compiled everything you need to know about using equity release to pay for care in the home, also known as domiciliary care, including its potential impact on your financial future and eligibility for means-tested benefits.
What is Equity Release?
Before considering equity release as a way to fund care, it’s essential to understand how it works and how it could affect your personal circumstances.
Equity release allows homeowners aged 55+ to access the wealth tied up in their property, either as a tax-free lump sum or through a drawdown facility to be accessed as needed. This is often through a loan secured against your home, or by selling part or all of your home without the need to move.
The most common uses for equity release funds include:
- Supplementing retirement income
- Paying for care costs
- Paying for home improvements
- Gifting to family members
Types of Equity Release
There are two main types of equity release, lifetime mortgages and home reversion plans.
Lifetime Mortgages
A lifetime mortgage allows homeowners to borrow against their property’s value, providing them with equity release funds as a tax free lump sum or access as a drawdown facility at a later date. The loan is secured against the home, and interest is typically rolled up (added to the loan) over time. Homeowners can choose to make voluntary repayments or let the interest accrue.
Home Reversion Plans
With a home reversion plan, the homeowner sells a percentage or all of their property to an equity release provider. In return, they receive a lump sum or the funds will be available in a drawdown facility at a later date. When the property is eventually sold, the provider will take their agreed share of the proceeds.
Who is Eligible for Equity Release?
To qualify for equity release, applicants must meet the following criteria:
- You must be aged 55+
- Your property must be worth £70,000 or more
- You must have 75+ years left on the lease if leasehold
- The property must be your main residence
- The property must be in a good, habitable condition
Learn more about the eligibility criteria for equity release.
Using Equity Release to Fund Care
Is equity release suitable for care costs?
Equity release can be a suitable option for covering care costs, but it’s important to weigh up the pros and cons before deciding. Releasing equity can provide a lump sum or can be available in a drawdown facility to access later to help pay for care expenses, but it may also reduce the inheritance you leave to your family.
Additionally, equity release can impact your entitlement to means-tested benefits, such as Pension Credit or Council Tax Support.
Speaking with a financial adviser who is an equity release specialist can help determine if equity release is suitable for your individual circumstances and long-term financial goals.
The impact of equity release on care costs
Equity release can be a suitable option for retirees looking to improve their home life through in-home care and home adaptations to maintain their independence. Additionally, equity release can serve as a financial solution for funding care costs in the UK, providing necessary funds for care through equity release agreements.
However, if you believe you may need to move into a nursing home or wish to use equity release to pay for care in a long-term residential home, equity release may not be suitable for you. Your equity release adviser will discuss your suitability and if there are alternative options better suited to your circumstances.
As members of the Equity Release Council, we’ll only suggest plans that meet the Equity Release Council’s guarantees including the right to remain in your home for life providing it remains your main residence.
If you have already released equity from your home and require long-term residential care, your equity release plan will need to be repaid in full, typically through the sale of your home.
Learn more about the safeguards of equity release.
The impact of equity release on benefits and care costs
Equity release can impact your entitlement to certain means-tested benefits, such as Pension Credit or Council Tax Support, by increasing your savings or disposable income.
Homeowners should discuss their circumstances with a financial adviser to understand the potential impact on means tested state benefits and care costs in the future.
Learn more about the impact equity release may have on your pension and benefit entitlement.
Alternatives of equity release to fund care costs
Equity release isn’t always the right option, however there are several alternative options to fund care fees including:
Local authority support
If you’re looking to move into long-term care, you may be eligible for local authority support if you meet their eligibility criteria.
NHS Continuing Healthcare
If you have any health conditions that require care and assistance, you may be entitled to NHS Continuing Healthcare depending on the nature of your needs.
Deferred Payment Schemes
Some councils will allow you to use a Deferred Payment Scheme to pay for care costs. This will place a legal charge on your home, and this will allow you to pay for care after you sell your home or when you pass away.
Pension Income
If you are assessed to find out how much you will need to pay for care, your local authority will take into consideration your pension income and may require you to use this towards your care fees.
Selling your home/downsizing
Whilst selling your home is not always necessary, it is one of many options you may consider when deciding how to pay for care. Your financial adviser will discuss if this is an option you need to consider.
Seeking advice from an independent financial adviser can help you consider all your options, whilst having the advantages and disadvantages of each option explained so you can decide that’s right for you.
The rising popularity of in-home care
Domiciliary or home care has been enjoying a rise in popularity as the preferred alternative to residential and nursing care.
It enables people with a range of care needs including illness or mobility issues to remain in their own home to receive care, rather than moving into a residential home.
The other benefit of in-home care is that it can be as flexible as you need it to be.
Perhaps you need someone an hour each morning to assist you in your morning routine, or maybe you need more frequent visits throughout the day, or a couple of afternoons a week. Your care plan will be tailored to your individual wants and needs.
However, when it comes to paying for your home care, you might find financial support options are limited and you are responsible for paying for all the care yourself. This is where equity release can help fund in home care costs with the tax-free cash you release from your property.
Funding domiciliary care
So, if you are facing the prospect of paying for home care for you or a loved one, what are the main options?
- Use your savings and investments to pay for your care home costs
- Use your property to pay your care home costs
For those who require care in their own home and do not qualify for local authority support, downsizing is one option to consider once any savings have been exhausted.
For many, however, selling the family home to move into somewhere smaller or in a less expensive area can be distressing and unsettling. For those who have already downsized in retirement, it might not even be a feasible option.
Fortunately, there is an alternative option to consider that enables homeowners to stay in the home they love whilst receiving the professional care they need.
That option is equity release, which allows homeowners aged 55+ to access some of their property wealth to spend however they choose, including paying for care, without having to move from their home. The funds released can be used to cover in-home care costs, home improvements, and even gifting money to loved ones, providing a flexible financial solution for retirees.
Can I use equity release to pay for care at my home (domiciliary care)?
Many homeowners who choose to release equity from their home, do so to fund in home care or home adaptations to allow them to remain in their property comfortably for as long as possible. Homeowners can receive a cash lump sum or access their funds in a drawdown facility through an equity release scheme such as a lifetime mortgage or home reversion plan.
The costs associated with moving into care and care homes can be substantial, making it difficult for some people to afford the fees or wish to pay the high costs. In this instance, homeowners sometimes decide to release equity so that they can stay in their home known as domiciliary care.
This can allow homeowners to pay for private medical care at home, carry out home adaptations to enable a comfortable life at home, and or pay for assistance at home so that they can be cared for, or certain tasks can be done to enable them to stay in their home.
Funding care home costs
These days, it’s hard to read the news without seeing something about our ageing population and the strain on Social Services due to rising care needs.
As shown in the Statutory Guidance on the Care Act 2014, the goal for social services should be to encourage people to stay in their homes for as long as possible with the right support. However, in some cases, staying at home is no longer a viable option, and a move into long-term residential care becomes necessary.
With the high costs of care homes, many families worry about how to cover the fees without selling the family home. Equity Release can provide a solution by unlocking the value of a property to help fund care, offering financial flexibility while ensuring access to the necessary support.
Does equity release affect care home fees?
Equity release can affect the amount you pay towards your care home fee, serving as a financial tool to help fund care expenses, particularly for retirees. Whilst equity release may provide you with a tax-free lump sum initially, the loan against your home in addition to the accrued interest, will reduce the value of your estate and subsequently minimize the remaining funds you may be able to draw on to pay for residential care once your plan is repaid.
Your equity release adviser will discuss the pros and cons of equity release, in addition to taking into consideration your circumstances and how this may be impacted in the future. If you believe you may need long-term care in the future, your adviser may discuss alternative options to help you prepare for the future.
Equity release plans refer to agreements exclusively entered by a homeowner or homeowners, that is the individuals listed on the property deeds and the land registry office.
Anyone can be added to a plan or taken off providing this is done by a solicitor. Should the last homeowner transition to long-term care, the agreement concludes, and the equity release is repaid from the sale of the property, or repayment of the lifetime mortgage by beneficiaries.
Although equity release offers immediate funds for care home fees, it is crucial to consider the long-term consequences. Opting for any equity release reduces the value of the estate and money available for long term care. It also reduces money that you could leave as inheritance to your family or beneficiaries.
Lifetime mortgages where interest is not paid and is compounded means that the balance will build over time, reducing the estate’s value. If someone with an equity release requires to move into a care home, they will need to repay the equity release loan, usually necessitating the sale of the home.
Funding home adaptations
Moving home can come with a lot of up-front costs that you may not be prepared for, which is why some customers choose to use their equity release to fund home adaptations to make their home safer and more comfortable to live in.
Whether you have mobility issues or wish to make your home safer in the long run, some of the ways your home can be adapted include:
- Ramps
- New stair rails
- Stair lifts
- Washrooms/adapted bathrooms
- Non-slip flooring
- Grab-rails
It’s important to check your eligibility for benefits and grants that could assist you in funding home adaptations. Your equity release adviser will discuss your circumstances in detail including the impact on any benefits you currently claim.
Independent advice you can trust
At Bower Home Finance, we’re here to help you.
Whether you’re looking to understand what equity release is, or how it might impact your existing circumstances, our advisers are on hand to answer your questions every step of the way.
Offering no obligation advice, we can help you understand the options available and find the right equity release provider and plan if it’s right for you.
Get started today using our equity release calculator, or request a callback from our team.
The Importance of an Equity Release Adviser
An equity release adviser plays a crucial role in helping you navigate the complex process of equity release. They will assess your individual circumstances, provide guidance on the best option for you, and help you understand the potential risks and implications of equity release.
A good equity release adviser will be fully qualified and experienced in providing equity release advice. They will be authorized by the Financial Conduct Authority (FCA) and will adhere to the Equity Release Council’s standards. When choosing an equity release adviser, it’s essential to do your research and find someone who is reputable and trustworthy.
FAQ’s
How can equity release be used for care costs?
Equity release can help cover various expenses, such as:
- Home care (domiciliary care) – including professional in-home caregivers and home adaptations.
- Care home fees – for those moving into residential or nursing care.
- Other costs – such as home improvements or additional living expenses.
Equity release schemes are designed so that homeowners can remain in their property for life or until they need to move into long-term care.
How does equity release affect care home fees?
Whether you require assistance at home, need to cover your partner’s care home expenses, or plan to make modifications to your house, equity release is an option for homeowners, especially when you have limited funds of your own.
However, it’s imperative to seek guidance from a financial adviser who is an equity release specialist before making any decisions so that they can go through all the advantages and disadvantages and discuss your requirements in more detail.
They can assess your financial situation comprehensively, explore various options, and assist you in finding the most suitable solution tailored to your specific needs and circumstances, which may not be equity release, whilst helping you understand the implications if your circumstances change.
What happens with equity release if you go into care?
All equity release plans are structured to allow you to continue residing in your home until your passing, or until you need to move into long-term care.
If the need arises for you to move into long-term care, and you are the last remaining owner of the property who is entitled to live in the property, the house will be sold to repay the equity release lender and any balance after the equity release is repaid will be given to you or your estate as per any instructions in either your Will or a Lasting Power of Attorney.
However, if your equity release is a joint plan, the loan will not need to be repaid until the final occupant moves into long-term care or passes away.
What happens to equity release when you die?
Equity release mortgages are intended to be repaid when you pass away or move into long-term care. This is often through the sale of your home, which will allow the equity release provider to reclaim the amount they are owed from your estate. Understanding how equity release mortgages work when you die is crucial for effective estate planning.
Once your executor has settled the loan with your equity release lender, they will be able use any extra funds to distribute as stated by your will.
Learn more about equity release on death.
Can I use equity release to avoid care home fees?
No. Equity release agreements require full repayment if you transition to long-term residential care. Any remaining balance can be used to cover your care home fees as can any savings.
Local authorities may also consider equity release as deliberate deprivation of assets if you are aware you may need to move into long-term care, which can affect care home fee assessments. It’s important to seek independent financial advice to consider your individual circumstances and if an alternative to an equity release scheme is more suitable.
