Finding ways to pay for live-in care can be frustrating and overwhelming. If you or your loved one do not qualify for funding through your local council or NHS, you may be looking for alternative solutions that allow you to receive the care you need in the place you love best – your own home.
Here you can learn all about using equity release to fund live-in care and how it’s an option for people who own their own homes. This guide explains the different types of equity release schemes, who is eligible, the advantages and disadvantages of equity release schemes to fund live-in care and where to go to get impartial advice.
What is equity release?
Equity release is a financial mechanism that allows you to free up some of the value of your home to pay for live-in care whilst you continue living there. You can gain the money as regular payments or as a large single payment and can use it to pay for your live-in care costs.
There are two types of equity release available:
Lifetime mortgage – This is when you borrow money secured against your home. The mortgage is usually repaid from the sale of your home when you pass away or choose to permanently move out.
Home reversion plan – This is where you raise money by selling all or part of your home but stay in your home until you pass away or choose to move permanently.
With both options, you will have to keep paying building insurance and cover the costs of maintaining your home.
Who is eligible for equity release?
Generally, for a Lifetime Mortgage, you need to be over 55 to qualify. For a home reversion plan, the minimum age is 65. If you are in a couple and you both have equity in the property, you must both meet the age requirements.
The property should be your primary residence, located in the UK and worth £70,000, or more. Some lenders may have additional criteria on the types of properties they will accept for equity release funds.
You can still qualify for equity release if you have a mortgage or other loan secured against your property – but it will depend on the value of your home and the amount you owe. In such cases, you will be required to pay off any outstanding mortgages or loans at the same time as taking equity release.
While the eligibility for equity release schemes is straightforward, it’s a big decision that should not be taken lightly. Homes are usually the biggest asset a person or family owns, and while equity release can be a great way to fund live-in care, it’s important to understand the implications fully.
The benefits of equity release
Opting for equity release to pay for live-in care offers some real benefits:
- You get to stay in your own home and don’t need to move, so you can enjoy live-in care at home.
- You can get a tax-free lump sum and/or smaller, regular payments to supplement your income.
- You continue to benefit from any rise in the value of your property.
- You can still move home if you want to, as equity release schemes are transferable, provided the new property meets the lender’s criteria.
- With a lifetime mortgage, you continue to live in and keep ownership of your home.
- When your property is sold, and the debt paid off, there may be money left over to provide some inheritance.
- With a lifetime mortgage, the equity released from your home is tax-free.
- Your funds can usually be released more quickly than waiting for a sale.
The disadvantages of equity release
There are also disadvantages to equity release that need careful consideration:
- It reduces the value of your estate for your beneficiaries as some of the value of your property will go to repaying the lender.
- With a home reversion plan, you lose either part or all of the ownership of your property to the lender.
- It may affect your entitlement to means-tested benefits, now and in the future.
- Any debts secured against your property, like an existing mortgage or loan, must be paid off at the same time as taking equity release. You can do this by using some of the money released from your property.
- Unless you choose to repay the interest each month, interest will be charged on both the amount borrowed and any interest already added to the debt (also known as compound interest). Interest rates are usually higher than standard mortgage rates.
- It can be inflexible if your circumstances change. You may need the lender’s permission for someone else to move in, such as a relative, carer or new partner.
- There are costs involved in setting up equity release – such as arrangement, valuation, legal and set-up fees. However, these can often be added to the value of the loan.
This is the most popular form of equity release. With lifetime mortgages, you borrow some of your home’s value at a fixed or capped interest rate. This type of equity release is essentially a loan against your property, but you don’t have to make any monthly repayments if you wish. Instead, the interest accrued will build up over time and will be paid off along with the lump sum you borrowed upon the sale of the estate.
There are two types of lifetime mortgage equity release:
- An interest-paying mortgage – where you pay off the interest as you go.
- An interest roll-up mortgage – is when you do not pay off the interest as you go, the interest will instead compound over time (in this case you will end up repaying more overall).
With a lifetime mortgage, you can either take the money all at once in a lump sum or you can take it in smaller chunks as and when you need it – something known as drawdown. If you choose the drawdown option, interest will only be charged on the cash you’ve actually taken, and not on the money you’re yet to draw down.
The amount you can borrow is usually between 18% and 50% of the property’s total value – typically the older you are, the more you can release. Most providers now offer a ‘no-negative-equity guarantee’, which means the debt will never be more than the sale value of the property. However, this could still mean that all the property’s value is used up in paying off the mortgage.
You may qualify for an enhanced lifetime mortgage if you have a serious health condition or an unhealthy habit, like smoking. This can enable you to borrow more or to pay lower interest.
Home reversion plans
Home reversion plans pay you a tax-free lump sum for a portion of your home at below market value. You can then live in the property (rent-free) until you die. When it’s sold, the proceeds are split based on the percentage you own and the lender owns. So if your property value rises significantly, so does the amount the lender gets.
The money can be paid to you either as a lump sum or as a regular income, whichever you prefer. Whether you sell all or only part of your home, you won’t receive full market value for it, so bear this in mind when making your decision.
Generally, the older you are when you take out the scheme, the more money you’ll get. Your state of health is also taken into account – having a chronic health condition usually means getting a larger share of the value of your home.
Generally speaking, home reversion plans are better if property prices stay constant, and worse if they rise substantially.
Can you use equity release to pay for home care fees?
Once you release funds from your property, you are free to spend it as you wish, such as paying for live-in care.
Equity release is appealing in lots of ways to those considering live-in care but are short of funds to pay. House price growth in recent decades has meant that some older homeowners have an asset worth a lot of money, which they can’t access. Equity release gives homeowners the ability to free up assets so they can use the money for things they need now, like live-in care.
If a person wants to be cared for in their own home but doesn’t have the funds to pay, equity release is undoubtedly an option to be explored. However, it is a big decision, and one that can’t be reversed, so seeking impartial financial advice and considering alternative options, like downsizing to a smaller home, are critical in order to make an informed decision that you won’t regret later.
How much does equity release cost?
There are costs associated with arranging equity release from your property. While these costs differ depending on the lender and arrangement made, here are the costs you might have to pay:
- Legal fees
- A valuation fee
- Buildings insurance
- Early repayment charges, if you want to redeem the mortgage early
- An administration fee to the mortgage lender, sometimes known as an ‘application’ fee
- A fee to your adviser for their advice
- A completion fee – This can be added to the loan
How to get advice on equity release
If you think an equity release scheme could benefit you, it is essential to speak to an independent financial adviser, preferably one with the specialist CF8 qualification on advising on the funding of long-term care.
All firms advising on or selling equity releases have to be regulated by the Financial Conduct Authority (FCA). This provides protection, security and access to the Financial Services Compensation Scheme if you ever need it.
To get free impartial advice about equity release schemes contact Step Change, an independent financial advice charity, or from Money Helper, an independent financial advising body funded by the UK Government.
How Country Cousins can help you stay at home
If you or your loved one are considering live-in care look no further than Country Cousins. We are the longest-established introductory live-in care agency in the UK, having been trusted throughout the country for over 60 years.
Our extensive experience and dedication to providing perfectly matched carers for our clients means that we are perfectly placed to provide you or your loved one with the high-quality, live-in care you deserve.