Every year, councils across the UK receive nearly 2 million requests for help sourcing at-home care- the majority of which come from people over the age of 65.
While councils may be able to help some people fund the care they need, most people will need to contribute to the cost of their care, and many will have to fund it entirely by themselves.
Whether it’s needed long-term or just on occasion, at-home support can be utterly transformative to quality of life- but it doesn’t come cheap.
Finding the funds to maximise the independence of you and your loved ones can be a struggle- but equity release could provide a solution. It enables you to borrow money against your home, without making any repayments as long as you continue to live there.
What Is Equity Release?
Homeowners over the age of 55 whose property is worth at least £70,000 can tap into the wealth ‘locked up’ in their property through an equity release plan.
Using the value of your home as security, equity release allows you to borrow a tax-free lump sum or withdraw a steady stream of income while you continue to live in your home and without making any repayments.
Instead, the loan and any interest is paid off when you die or move into long-term care.
How Does Equity Release Work?
There are two types of equity release scheme available in the UK: lifetime mortgages and home reversion plans. The minimum age for a lifetime mortgage is 55, and 65 years old for a home reversion plan.
A lifetime mortgage is a loan with a fixed interest rate which is secured against your home. Unlike a regular mortgage, you don’t make any repayments. Instead, interest is added to the money you borrowed, which is paid back in full when you die or move into long-term care using funds from the sale of your house.
When you take out a lifetime mortgage, you can choose to withdraw all the equity at once in a lump sum, or withdraw smaller amounts as you need them, in a ‘drawdown’ plan.
Home Reversion Plan
In a home reversion plan, a lender buys a share in your property at a below-market price, while you continue to live in your home as normal. When you die or move into long-term care, the lender recovers its investment through the sale of your home.
You can choose whether to release the equity in one lump sum or to receive a regular stream of smaller payouts from your lender.
does not mean they are necessarily a bad idea, but it is important to understand the costs and benefits to decide whether equity release is right for you.
In a lifetime mortgage, you don’t make any repayments on your loan while you alive. This means that the interest on the loan compounds on an ever-increasing total, and so mounts up very quickly compared to a repayment loan.
For example, £60,000 in equity borrowed over ten years at 5% would result in a lump sum of £98,820 to be repaid from your estate when you die.
This debt roll-up is one of the major drawbacks of equity release. However, it is possible to minimize the impact of compound interest: making payments on the loan interest while you are still alive or reducing the amount you borrow is a couple of ways to avoid this debt roll-up.
Funding At-Home Care With Equity Release
Care Requirements of Over-65s Getting Help at Home
|Care Needs||Proportion of people accessing this kind of council-provided care|
|Memory & Cognition||13%|
Costs of At-Home Care
While most people would prefer to stay in their own home for as long as possible, the costs of home care don’t come cheap. According to the NHS, the average hourly rate for a home carer is £20.
Round-the-clock live-in care costs an average of £2600 per month but could set you back as much as £6400 per month if you have lots of complex needs.
For at-home care to be a sustainable option, healthy incoming cash flow is required. Even if you don’t have complex health needs, the cost of having someone to visit for a few hours each week can soon mount up.
Funding At-Home Care With Equity Release
When you release equity on your home, you could get up to 50% of your property’s value in a tax-free lump sum or steady stream of income.
Depending on your care requirements and property, this could be enough to pay for care which allows you to enjoy a better quality of life while staying in the comfort of your own home.
If you suffer from a chronic illness, some equity release providers may even agree to increase the percentage of your home’s equity that they are willing to lend you.
For example, on a home worth £375,000 with £15,000 left on the mortgage, a person aged 75 years old could release up to £175,000, according to debt charity StepChange.
Based on the costs suggested by the NHS, this is enough to pay for:
- Up to three hours of home care every single day for nearly eight years
- Five and a half years of live-in, at-home care for low-risk healthcare needs
- Over two years of live-in, at-home care for complex healthcare needs
Means Testing for At-Home Care
In the UK, local councils offer means-tested funding to help with the cost of at-home and residential care. For at-home care, the local council will assess your income to decide how much funding you should receive.
If you release equity on your home, the council may take this into account when they assess whether you are eligible for funding, as it constitutes additional income.
Currently, if you have an income of more than £23,250 per year, you are expected to fund care expenses by yourself.
The council may offer you some help if your income is less than this, and is obliged to fully fund your care if your income is less than £14,250 per year.
If you decide later on that you need to move into a residential home, the council will also look at the equity in your home as part of its assessment.
If you have already released equity in your home at this stage, it could be interpreted as a sign that you have limited options to fund your residential care, so you may be eligible for more funding.
Before you agree to equity release, you should consider how it could affect means-tested support and speak with an independent adviser about finding the best solution for you.
What Happens if I Need to Move to a Long-Term Care Facility?
If the time comes where you decide you needs would be better served by moving to a long-term care facility, your equity release plan may come to an end.
What happens to your plan depends on whether the account is held by a single person or is a joint account. If there is just one name on the equity release plan, then when that person moves into long-term care, the plan comes to an end, and the property is sold.
However, if there are two people listed on the plan, the property will not be sold until both of the parties have moved into long-term care or died.
Depending on how much you owe at the time you decide to move, you may be able to use some of the money from the sale of your home to help fund your live-in care.
However, if you have accrued a large amount of interest on your equity release plan, you may wish to seek assistance from the local council or fund your care with other investments.
Pros and Cons of Funding Care With Equity Release
|Enables to fund specialist care while continuing to live at home||If you or a partner need to move to long-term care later on, there will be less equity left in your home to fund this|
|Helps to improve your quality of life and allow you to spend more time with loved ones||Means-tested care funding could be affected if you release equity|
How Can Equity Tree Help?
Here at Equity Tree, we have partnered with some of the UK’s leading Equity Release broker companies.
They have already helped thousands of people release equity already, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these equity release companies, click on the below and answer the questions.