About half of the people who enter a care home are funding their own care. Whenever we sit down with clients to discuss meeting the costs of care, after we work out the income shortfall, we always explain that there are 6 options available to them. Within this 2-part article we will explain what those options are and consider the advantages and disadvantages.

In this part we will consider the options using a property.

  1. Let the property – If the person in care has a property, this could be rented out in order to generate an income, which can be used towards the monthly shortfall.

Advantages

  • Can keep the property if there is a desire to do so from the beneficiaries.
  • May benefit from future property price increases
  • Rental yield might be particularly attractive

Disadvantages

  • Rental increases may not keep pace with the increases in the care costs
  • If rental does not cover full shortfall, not option to draw down on capital
  • Many attorneys have not been landlords in the past and are not up to speed with the current regulations associated with renting a property out.
  • The property may require work to bring it up to standard to be rented
  • There are additional costs, such as landlord insurance and repair costs that will need to deducted from the rental income, reducing the amount that can be used towards the cost of care
  1. Deferred Payment Agreement – Since the Care Act 2014 received royal assent, Local Authorities must offer the option of a deferred payment agreement to all eligible care recipients. This is where the Local Authority fund the care during the recipient’s lifetime and roll up a debt secured on the property. The debt is repaid from the estate after they have died.

Advantages

  • The interest rate and administrative charges on the debt is low compared to commercial versions of this scheme
  • May benefit from future property price increases

Disadvantages

  • Even at low rates, the compound effect of interest over a long period of time can mean that the value of the property is used to pay for care
  • This option is only available if the recipient’s other assets do not total more than £23,250
  • The recipient is still responsible for the ongoing running costs of the property
  1. Equity Release – This is a commercial version of the Deferred Payment Agreement above, but rather than the Local Authority taking a charge on the property, it is an insurance company. There is no restriction on the amount of other capital that the recipient has, so it is more widely available, however it requires one of the applicants to be living in the property, so it is generally only appropriate for couples where one spouse has gone into care.

Advantages

  • Allows the spouse who does not require care to remain in the property
  • May benefit from future property price increases

Disadvantages

  • The interest rates and charges are higher than the Deferred Payment Agreement
  • Even at low rates, the compound effect of interest over a long period of time can mean that the value of the property is used to pay for care
  • The running costs of the property will still need to be met on top of the care cost.

If you would like to speak to a member of WBW Chartered Financial Planners about any of the content in the article or for any financial planning related queries that you may have, then you can arrange a free telephone consultation for this week only as part of CISI’s Financial Planning Week 2019. To arrange a free consultation, please call 01626 202340 or email enquiries.cfp@wbw.co.uk.