Can equity release help pay for care?
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My father moved into a care home three years ago and so far we’ve funded his care from his pension, savings and investments. He's resistant to the idea of selling his home, even though he will never be well enough to live on his own again. However, he will run out of savings in the next two years. Can he take out equity release on the house, which could then be paid off after his death?
Diane Fish from Smith & Pinching responds:
I understand your father’s reluctance to admit to himself that he won’t be able to return to his home – that’s a tough thing to accept. There are a few ways he could retain the property and still meet his care bills, but equity release is probably not one of them.
Equity release, using a lifetime mortgage, normally requires you to live in the property against which you are borrowing. There are specialist landlord lifetime mortgages available, but these are relatively rare and the qualifying criteria are likely to be stricter. Interest rates may also be higher than for a standard residential lifetime mortgage.
An alternative way to source income from the property might be to let it out to a tenant. This would bring in rental income which could be used to fund his care. Whether or not it would cover all the top-up to income needed for the cost of his care will depend on factors such as the rentable value of the house and his pension income.
Another area to explore might be his pension. Depending on the type of pension he has, it may be possible to increase the level of pension income he is taking, although that will have an impact on its sustainability in the longer term. You should also be mindful that any rental or pension income would be subject to income tax and may affect other benefits your father receives.
I suggest you talk to an Independent Mortgage Adviser about what borrowing might be available in his situation.
Taking out a lifetime mortgage/equity release arrangement will mean that the value of the estate you leave to your family when you die will be reduced. It may also affect your entitlement to any means tested benefits both now and in the future. Equity release can be more expensive when compared to a normal residential mortgage. In addition, you will still be responsible for maintaining the property.
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This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. There will be a fee for equity release/mortgage advice. The precise amount will depend upon your circumstances, but we estimate that it will be a minimum of £1,100. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk