There is no getting around it – care costs are expensive! The amount you’ll need to contribute will depend on your elderly relatives circumstances and savings. However, there is funding help available and we suggest you research these options first. Our guide to Funding Later Life will help you get started.
We have all read horror stories of families having to sell their parents’ home to pay for care costs and sadly this is a reality for many. However, Equity Release for meeting care costs is another route to consider – as this is a way of freeing up any capital people have in their home without losing the home.
For the majority of people, the desire to continue living in their own home during old age could make this a much more desirable option. Carefully planned Equity Release can be a solution for elderly people who do not wish to sell their home in order to meet care fees.
Equity Release to pay for residential care
Depending on the level of care required, the first step is to contact your local authority for a Care Assessment. This involves a financial means test to work out how much (if any) of the care cost your relative will need to cover themselves.
If the means test shows that your parents or elderly relative have capital in excess of £23,500, they will be expected to cover all of the fees. If it is above the lower threshold of £14,250 and under £23,500 they will be expected to contribute some of the fees. If one parent needs residential care and the other remains in the family home, the house capital is not included at this stage, see below for further guidance.
However, being above the savings threshold does not mean that a person necessarily has the expendable income available to cover all of the care fees. This is how Equity Release from the home, could be used to meet some of the costs.
There may still be other bills, or other care-related costs, that you need to meet on top of care fees. Equity Release could be an option for covering these other bills while paying for care using existing capital.
Equity Release to pay for home care
Remaining at home as we grow old is by far most people’s preferred option. Depending on care requirements, this is becoming safer and more affordable with advancements in technology and improved home care services.
There can still be considerable costs for home care, particularly for services such as round-the-clock live-in care. Live-in care costs tend to start at around £950 a week.
Equity Release can be used to help fund home care for a person looking to remain in their property. By releasing money from the value of the property, your relative can continue to live and receive care where they are happiest — in their home.
Equity Release to pay for home improvements
Costly home improvements are sometimes necessary in order to live at home safely. This can include the cost of adaptations such as having a stairlift fitted, a bathroom moved downstairs or wet room installed, or having a ramp installed.
Equity Release offers a means of paying for home improvements — especially for people who want those improvements in their existing home.
The Age Space Equity Release Calculator can help you to estimate how much money your relative can release from their home. You can use this information to estimate the contribution that Equity Release could make each year towards care costs.
Equity Release options for care funding
There are a number of different ways in which Equity Release can be structured to meet the costs of care.
Lifetime Mortgage Drawdown Plan
One way of using Equity Release to meet care costs is through drawing down regular sums from a Lifetime Mortgage Drawdown plan. This can allow you to pay regular care fees as they arise, as well as having money available for other household costs.
Lifetime Mortgage Drawdown plans let you draw down cash from your home as and when you need it, rather than in a lump sum. This can be an advantage in terms of interest repayment, as interest is only charged on the money as you receive it. If you released a large initial lump sum, interest would be charged on the whole amount from the start.
Only drawing down funds as-and-when they are needed can also help to manage the amount that has to be contributed based on the means test.
Monthly tax-free 'income'
Another option for Equity Release for care funding is to set up a monthly tax-free ‘income’ from a Lifetime Mortgage Income plan.
This Equity Release plan could be useful for a person who needs to supplement their existing income or savings in order to meet their care costs, but does not need large sums regularly.
One-off lump sum
Some people use Equity Release to take out a one-off tax-free lump sum. This may be used to manage care costs, pay other bills, or fund large home improvement work.
This Equity Release option would be appropriate for someone who needs money immediately for up-front costs such as home improvements or adaptations.
Equity Release to pay for an Immediate Needs Annuity
A one-off Equity Release lump sum can be used to purchase an Immediate Needs Annuity. Immediate Needs Annuities are care packages which ensure that care costs can be met indefinitely.
This can provide peace of mind that you will never run out of money to pay for care. However, it is running the risk that you will lose the money invested if you die soon after purchasing the Immediate Needs Annuity.
John Lamb Hill Oldridge can help. They are a trusted voice in the field of later life planning, and will prioritise your needs in order to help you make the best financial choices.
Frequently Asked Questions about Equity Release and Funding Care
Does Equity Release affect care home fees?
If a person moves into residential care after they sign up for Equity Release, this can affect the bills that they are required to pay.
Care home fees could be higher if the Equity Release package means that they have either a large lump sum in the bank, or are receiving large regular payments. The local authority will take these into account when carrying out the means test.
How does Equity Release affect care costs?
If you have a large lump sum in the bank from your Equity Release deal, or if you are receiving regular income from it that is above the care fees threshold, you may be required to cover more of the care costs.
On the other hand, having taken money out of your property using Equity Release (which is not just sitting in your bank account) could mean you are seen as having a reduced level of assets. You may therefore be asked to contribute less towards care fees.
How Equity Release affects care fees depends on the type of Equity Release plan you go for, and other assets you own.
An Equity Release adviser can help you to estimate the care fees that you would be asked to contribute with any Equity Release plan.
Can I take out an Equity Release mortgage to avoid paying care fees?
You cannot take out an Equity Release mortgage in order to avoid paying care fees.
If, during your financial assessment, your council believes you have taken out Equity Release in order to cheat the means test then they can overlook your Equity Release arrangement and treat you as though you still own the equity in your home.
Attempting to cheat the means test is called a "deliberate deprivation of assets".
The longer your Equity Release deal was taken out before it was apparent you needed care, the less likely it is that the council will see you as having tried to cheat the means test.
Can you use Equity Release to buy an Immediate Needs Annuity?
Some people do take out a lump sum from Equity Release in order to buy an Immediate Needs Annuity — which covers care costs indefinitely.
There are risks associated with Immediate Needs Annuities, which you can read about in our Guide to Immediate Needs Annuities, and which you should discuss with an Equity Release specialist in care planning before making a decision.
Is there a cap on care home fees?
There is not a cap on residential care home fees in the UK.
How much can you keep before paying for care?
If you have income, capital and savings between the £14,250 lower threshold and £23,250 upper threshold, you will generally be required to contribute some care costs.