At a glance
- It’s never too early to think about how you might fund long-term care in later life, either for you, your partner or your parents.
- Care can be costly, but you may not have to put your house on the market to pay for it.
- Careful planning and advice allow you to explore ways that you could keep your home and cover your care fees too.
It can seem like ‘tempting fate’ to start planning for social care if you might not need it. But an unexpected change in our health or mental capacity can catch us out and put the whole family under financial pressure. It really is important therefore to start to think about this early, and open up family discussions.
It’s hard to put a number on how many of us will social care – but it could be as high as one in four1.
The majority of older people in the UK who need long-term care have to fund some or all of it themselves. And costs are still rising; residential care home fees jumped by 11% in 2023 to just over £46,000 a year – and that’s without nursing costs. In some parts of the country, it can be closer to £50,0002. Most people do need to self-fund, which can drain savings, and make a big dent in the size of your estate.
It’s no surprise that many of us immediately imagine we’ll need to sell our property to cover the costs, as it’s often our most valuable asset. But you may have other options.
Here’s what you need to know to work out how your property fits into funding later-life care.
Will I have to sell my house to pay for care?
If you have assets of more than £23,250 in England and Northern Ireland, £32,750 in Scotland or £50,000 in Wales, your local authority won’t normally fund your long-term care. What’s more, the value of your home will usually be included in this calculation.
However, the value of your property won’t be included if:
• You continue to live in your house and receive care in your own home.
• You move into residential care but your spouse or civil partner continues to live in the property.
• You have an ‘eligible relative’ who will continue living in the property. An ‘eligible relative’ could be another family member over the age of 60, dependent children under the age of 16 or a dependent relative with a disability.
Any of these circumstances mean you can keep hold of your home if you want to.
If you do move into residential care, and no ‘eligible relative’ is going to stay on in your home, your local authority should offer you a deferred-payment agreement, if the total value of your other assets is below the social care means test in your area.
A deferred-payment agreement is where your local Council effectively lends you the cost of your care-home fees at a very low variable interest rate, and you repay the loan when the property is sold. It means you can use the value locked up in your property to fund care home costs.
The good news is there’s no time limit on this agreement, so you can delay paying them back until you choose to sell, or until you die. So, you can keep your home or choose to sell, for example, when the property market is favourable.
Sharing your plans with your family
Receiving an inheritance, or a property, may play a major part in your own children’s long-term plans and financial wellbeing. Entering into a deferred-payment agreement will impact the size of your estate – and how much they inherit. If they’re counting on that lump sum inheritance to cover school fees, or pay off their own mortgage, it’s a good idea to share your funding plans with them. That way, everybody’s clear, and there are no surprises later down the line.
Could I rent my property to cover the cost of care?
You could also let your property to help pay for your care-home fees. This is becoming a popular option, especially if you appoint a letting agent or property management company to handle the admin and day-to-day maintenance. Letting your property means you hold onto your asset for as long as you want to.
What is the lifetime-mortgage ‘trap’?
A lifetime mortgage is an agreement with a mortgage lender who loans you a lump sum against the value of your property. The loan is then repaid, with interest, when you die or if you sell the property.
However, most lifetime-mortgage agreements state that if you move into residential care, the property must be sold within a certain amount of time – often twelve months. So you might be ‘trapped’ into selling when the housing market is weak or because converting the value of the property to cash will create a Inheritance Tax liability when you die.
One of the most common reasons why people sell their home to pay for care, is because they have taken out a lifetime mortgage.
Nonetheless, a lifetime mortgage can still be a good option for some people. It’s important to get good financial advice to help you find 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 use the rental income to help fund care fees.
Selling your parents’ house to pay for care
Many adult children only discover they’ll need to sell their parents’ homes to pay care home fees when one of their parents needs to go into care urgently. If that parent is no longer able to make decisions – due to reduced mental capability, the children may need to consider selling the home to cover their long-term care costs.
Selling the family home can be a difficult emotional decision – but it’s one your family should be prepared for. You’ll need to have or have been appointed by the relevant court to act on their behalf in order to manage your parents’ financial affairs.
It’s a wise idea to make sure your parents have appointed Powers of Attorney, even if they’re fit and healthy. Trying to arrange one if there’s a sudden change to their health or circumstances can take months. We’re happy to help your family put Powers of Attorney in place, and also help you manage the financial implications of selling your family home.
Seek advice before making any big decisions
Moneyhelper recommends getting financial advice if you’re likely to be self-funding your own care3, so that you can explore all the possible ways you could plan for, and fund, later-life care. There might be other family assets that could play a part, before needing to sell the family home.
We know that it can be difficult to talk about this topic within the family but financial advisers understand both the practical and the emotional side of the care journey. We’ve supported many families through this life stage, helping make sure that they, or their loved ones will receive the right care, at the right time, so that everyone has peace of mind when the time comes.
We can support your family to have these conversations and help you to make plans so that you can keep the family home and cover your care fees. That way, everyone has peace of mind.
Your home or other property may be repossessed if you do not keep up repayments on your mortgage.
To understand the features and risks associated with Lifetime Mortgages and Equity Release products, please ask for a personalised illustration.
Some buy to let mortgages are not regulated by the Financial Conduct Authority.
Powers of Attorney involve the referral to a service that is separate and distinct to those offered by St. James’s Place and are not regulated by the Financial Conduct Authority.
Sources
1Elderly Social Care (Insurance) Bill, House of Lords Library – accessed November 2023
2UK Care Guide, accessed November 2023
3Moneyhelper, paying for social care – accessed Dec 2023
SJP Approved 14/12/2023