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Utilising a Property to Pay for Care
Value
from the home may need to be
accessed to pay towards care. There are four
ways that this can typically be done:-
(see also ‘The Deferred Payments Agreement’ in ‘The
Conditions for Local Authority & NHS Funded Care’ section)
I. Renting the Property
If all that is needed is
investment income, then renting may be a possibility. Some
of the benefits
and considerations are:-
Benefits
-
The home can be kept.
-
The home can pass to beneficiaries
upon the person in care’s decease.
-
Income can increase with any market
increases.
-
Costs can be deducted
from income for tax purposes.
-
Capital values can increase
in line with any market
increases.
-
Rents may decrease.
-
Capital values may decrease.
-
There are numerous
costs involved, including:
-
Tenants may not always be found,
leaving the
home unoccupied and not paying income, with
council taxes
due.
-
Tenants may default
on rent, and it can take
many months and substantial
costs to evict them.
-
Rental income, by itself, can rarely cover the
cost of care home fees. [top]
II. Equity Release
There
are various ways that capital can be released
from the domestic home. This is usually only
valid if a spouse is still living in the home,
as providers will not advance funds on the home
of
a sole owner going into care, and going
into residential care ends an existing equity release
agreement for a sole owner,
with
the applicable capital having to be repaid to
the
provider. However, as the current enviroment demands,
some equity release providers are beginning to
loan to sole owners going into care, allowing the
property to be rented out of desired.
Equity Release schemes include:-
-
Lifetime mortgages.
-
Home reversion plans.
A lifetime mortgage may defer interest payments,
until death or other contract termination, or
they
can be paid if affordable (which is unusual for
care). Home reversion involves the purchase of
all or part of the home, and allows the planholder
(usually the spouse of the person in care) to live
in the home either rent-free or for a nominal
rent
until death or other contract termination.
Equity
Release schemes either provide capital, which
can be invested to provide income, or
provide income or regular withdrawals themselves. Click here to
be taken to further information on Equity Release.’
Benefits
Dependent on the scheme:-
-
If interest is payable, your home is at risk
if you do not keep up repayments on
it.
-
If interest rolls up, it could
deplete the value of your home.
-
The value of any part of the
home utilised for home reversion can be much less
than the initial share taken by the provider
in exchange.
To understand the features and risk
of all the above
equity release plans, please ask
for an illustration,
key features and other provider guides. [top]
III. Deferred Premium Immediate Care
Plan
This is one option which is due to
come on the market soon (June/July 2009) by one
provider. We will release full details as soon
as they are
available. However, as we currently understand
it:
-
The annuity premium will be paid
via a first charge on the property.
-
Interest on the loan will be fixed and rolls up.
-
The loan can be paid off either before
or upon the annuitant's decease.
-
There are no exit penalties.
-
The property can then be rented out
if desired.
-
The property can be put up for sale
if desired.
-
There will be some initial costs.
- The loan will only be able to buy an Immediate Care Plan with the
same provider.
A personal illustration will be
required to detail the terms and costs.
IV. Selling
the Property This is probably the most common
option for
people who were living alone
in their domestic
home. Benefits
-
Gains (if any) in the property market are lost.
-
The
property cannot be passed on to beneficiaries.
-
Selling a
property can take time and has some
cost involved.
-
The value will be less in low markets.
-
Care fees
will still
have to
be paid
whilst the
property is
up for
sale/being sold.
IVb. Home Purchase
Specialists
If selling the house is the most prudent course
of action, you may benefit from utilising the services
of home purchase specialists such as our recommended
firm Funding for Care. The difference
between a home purchase specialist and an estate
agent or
property sales management company, is that they
actually buy the house from you rather than arrange
a sale to someone else. This can alleviate much
of the stress, delay and costs of selling a house
to pay for care. Importantly it also gives you
certainty so that you can budget for the future
with a house sale secured. The funds which are
released can then be used to pay for care, whether
it is via an Immediate Care Plan or other vehicle,
as soon as possible.
Funding for Care arrange a Royal Institute of Chartered
Surveyors independent valuation. A guaranteed offer
is then made at a discount to the valuation to
reflect the risk and cost involved. The costs of
buying and selling are included within the discount.
You will not have to pay estate agents fees and
solicitor costs (if using the firms panel solicitors)
and you will not need to pay for a Home Information
Pack.
To summarise:-
Benefits
-
The house is sold and funds released very quickly.
-
Guaranteed offer gives certainty that property
is sold.
-
Independent valuation arranged via a Surveyor
with the Royal Institute
of Chartered Surveyors.
-
No decorating or repairs
needed to make property
saleable.
-
No estate
agents to pay for.
-
No Home Information
Pack required.
-
No
solicitor costs, if a panel
solicitor
is used.
-
Don’t
have the deal
with estate
agents and no viewers to show round the
house.
-
If being
utilised,
an Immediate
Care Plan
can begin paying
the
care fees
much sooner and
therefore
substantial
savings
made
Notes & Disclaimers
- Guides (which includes all information, data and views expressed) on this site are brief introductions, as such they cannot be relied upon: full
research needs to be conducted or professional advice sought
before investment and financial decisions are made.
- In the case of new investments,
pensions, insurances or mortgages, literature from the
investment provider needs to be read and understood: including product guides, key features and illustrations, which give details of product aims, benefits, risks, commitment needed, charges and commissions, before financial decisions are made and action taken.
- Guides published on this site
express the opinions of the authors which may not always
concur with our own if from other organisations.
- Guides are published by the permission
of the authors and/or copyright holders.
- You will be leaving our website to access some of the above.
We may not always concur with data and opinions expressed
and are not liable for the content.
- Your home is at risk if you do
not keep up repayments on a mortgage or other loan
secured upon it, this can include some forms of equity
release.
The FSA do not regulate some types of mortgage.
- Past performance is not an indication
of future returns.
- The price of bonds, properties
and shares, income from them and investments in them can
rise and fall.
- Investments in bonds, property
and shares should be deemed mid to long term, meaning at
least five years. Early surrender increases the risk of
the investor receiving back less than invested.
- Investments in capital protected
funds are only as good as the ability of the investment
provider and/or any guarantors to meet their liabilities.
A default on their part may mean that the investor receives
back less than invested.
- Tax concessions and legislation
may change and reduce the benefits of investments.
03/01/07
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