Paying for care: Is selling your home the only option?

Long-term care can be costly – but selling your house doesn’t have to be the only option.

For the majority of older people who need long-term care, it will be necessary to fund some or all of it themselves – this can be very costly, with average care-home fees somewhere around £35,000 a year or much higher. It’s no surprise then, that most will immediately think of selling their property to cover the costs, considering that this is frequently their most valuable asset.

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. But there are many different scenarios where this isn’t the case.”

If you or a loved one are thinking about long-term care, below is a summary 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 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 – and yes, they do usually include your home in this calculation.

There are a few circumstances in which the value of your home will be disregarded, however, such as:

  • 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 options will allow you to keep hold of your home if you want to.

If you don’t fall into the categories above and move into residential care, you should be able to agree a deferred payment with your local authority, as long as your total other assets are valued below the above-mentioned figures. This arrangement means the council will effectively lend you the cost of your care-home fees at a very low variable interest rate (currently less than 1%) and you’ll repay the loan when the property is sold.

The advantage here is that there isn’t a time limit to the agreement. This means you can wait as long as you like to sell and could enable you to keep the property until you die, for example, or wait for the property market to improve if there has been a dip.

You could also consider letting your property, providing an income to pay for your care-home fees. Paul Johnson, Head of Mortgages at St. James’s Place comments:

“We’re seeing a lot more clients doing this. 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’

 According to Johnson, one of the most common reasons people are forced to sell their home to pay for care is because they have taken out a lifetime mortgage. A lifetime mortgage is 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 the property is sold.

It’s easy to see why people take these out – it means you can release equity tied up in your home to either spend in retirement or pass on to children or grandchildren before either moving or death.

The big problem with this, however, is that most agreements state that if you move into residential care, the property must be sold within a certain amount of time – usually just three months. This can wreak havoc on a person’s finances, because you may be forced to sell when the market is weak, or because converting the property to cash can create a greater Inheritance Tax liability if you die.

With these risks in mind, a lifetime mortgage may still be a good option for some, in which case it’s important to choose the right mortgage provider. Some will let you avoid selling your home by, for example, switching the mortgage to a buy-to-let version to enable you to retain the property as well as potentially benefit from 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

 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 an adviser are clear. We will 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,” Clarke adds, “the financial-advice 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 to someone as soon as possible to somebody who understands the full long-term care journey…it can help to give you peace of mind and take the pressure off when you need it most.”

If you or a close relative needs long-term care, your Wellesley financial adviser can help you with the practical and financial aspects of the process and offer reassurance during what can be a difficult decision at this important stage of life.

Back to news