3 ways your property could fund your care

If you’re concerned about how you’ll pay for your care in old age, you’re not alone.

Research by Nationwide suggests two-thirds of British homeowners over the age of 50 worry about covering later-life care bills.

The cost of residential care has spiralled in recent years. On average, the first year in a care home costs £32,000, but this figure can increase over subsequent years. Older people typically stay in a residential care home for 30 months, thereby racking up an overall care bill of around £82,000, according to Independent Age.

If like most people, you haven’t saved up this much money, there is another option – your property. There are several ways you can use your home to pay for care. Here are three of them.

1. Downsize to a smaller property

Moving to a smaller property could release a large cash lump sum, which you could put towards your care fees. Some of the pros and cons to consider are:

Pros:

  • Unlike equity release, no interest is charged or accrued
  • You could move to a property that better suits your needs, such as a bungalow or serviced apartment
  • Regular bills and insurance could be cheaper.

Cons:

  • Moving home can be a lengthy process, which could be a problem if you need to move into a care home quickly
  • You’ll have to pay legal, transactional, and surveyor fees, and possibly Stamp Duty
  • You’ll have less space for your guests and belongings.

Another way of releasing capital could be moving to a cheaper area. This might be a more attractive option if you still want a large house for loved ones to stay in.

2. Release equity from your home

If you own your home outright, you can access the money tied up in your property through an Equity Release scheme.

Most people who use Equity Release take out a ‘lifetime mortgage’, which lets you retain ownership of your property. You don’t usually make mortgage repayments when you’re alive. Instead, interest is added to the loan and everything is paid off via the sale of your home when you move into care or die.

The other type of Equity Release is ‘home reversion’, where you sell all or part of your property but have a legal right to continue living in it.

Pros:

  • You don’t have to downsize
  • You have the right to live in your home until you move into a care home or die
  • Equity Release typically has a ‘no negative equity guarantee’, meaning your estate will never owe more than the property is worth when it’s sold.

Cons:

  • With a lifetime mortgage, you could owe more than you borrowed because it charges compound interest
  • With home reversion, you won’t always get the full market value for your home
  • Equity Release reduces the amount of inheritance your beneficiaries receive and could affect your eligibility for means-tested benefits.

We can help you to decide whether Equity Release is the right option for you.

3. Rent out your property

You could rent out your home and use the rental income to cover your care fees. This option might be attractive if you want to ensure your property remains in the family after you die.

Pros:

  • You’ll hopefully get a constant stream of income for the rest of your life
  • You can benefit from any increase in the property’s value
  • It avoids a rushed sale when house prices are falling.

Cons:

  • You might not always have tenants, so your income stream could be unreliable
  • You could be liable for Capital Gains Tax when the property is sold
  • Landlords have lots of responsibilities, although you can appoint someone to fulfil your duties at an extra cost.

Get in touch

If you’d like more information about using your property to fund your care, please get in touch. We’ll take a thorough look at your finances and explain the best options for your individual circumstances. Email enquiry@edinburghmortgageadvice.co.uk or call 0131 339 2281 to find out how we can help.

Please note

Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

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