The good news is that we are all living longer and despite what you might see on the news, the overall quality of healthcare is improving. The bad news is that the cost of care is also on the rise.
As a result, more and more people are facing uncertainty around the cost of their future care and how those expensive payments will be met.
Despite residential care and support being one of the most costly events in a person's life, the number of people who get financial advice about it is very small. According to research by the Local Government Intelligence Unit, 1 in 4 people paying for their own care run out of money. A lack of professional financial advice means they are not using their assets and resources in the most efficient way.
To help ensure you don’t get caught out, below is a brief guide showcasing the first three of six care funding options currently available to you:
Option 1: The Deferred Payment Scheme
The Local Authority's Deferred Payment Scheme was set up to help people who do not qualify for Local Authority help because their capital assets, including the equity in their home, exceeded the means tested limit of £23,250.
The reason why people struggle to qualify is because the equity they have in their home is higher than the qualifying limit but their savings and other readily available assets are far below the level.
The Government has therefore set up the scheme to help people in this situation avoid a hasty sale. The scheme works by the Local Authority taking a charge on the property and paying the care fees on the homeowner's behalf. The total amount paid is treated as an interest free loan, using the property as security. This loan is then usually repaid when the house is sold, whether that be in the short term or after the death of the person in care.
There are some limitations:
- The maximum fee the Local Authority will pay is restricted to the level which social services in their area would normally require to reasonably meet their care needs. This might be below the level of fees for the individual's chosen care home. (The individual is able to top this up from personal funds or donations from a third party)
- Acceptance onto the scheme is subject to Local Authority discretion. There are no recent figures on acceptance of applicants onto this scheme. However, in a survey by Channel 4 in 2008, they found that an average of 1 in every 15 applicants were successful in being accepted onto the scheme.
Option 2: Rent the property out
Renting your property out is an option for any homeowner who does not want to live in their property but wishes to use its value to generate an income.
Before considering whether this is a financially viable option for paying care fees, there are first some questions to ask.
- Is the property in a suitable state for renting?
- Is some investment required to upgrade the property?
- Is the location desirable for tenants?
- Is there a suitable emergency fund to meet ongoing maintenance requirements whilst tenants are in the home?
- How good would the net return be - and would it be sufficient to routinely meet the income gap?
In order to take into account the average rental returns, the Association of Residential Letting Agents (ARLA) undertake a quarterly review of the buy to let market as a whole. This might also help provide some insight into how this asset class is currently performing.
The decision to rent out a property is the same as any other investment decision, there are risks involved. Would you have the safety net to cover you if things turned against you for any period of time?
Option 3: Use Equity Release
Homeowners can use this to access the equity built up in their home without having to sell it. This can provide you with a lump sum, which can then be used to fund the fees required for the period they are needed.
The attractiveness of this option depends on the individual circumstances of the person in need of care. For example:
- Equity release normally requires that someone is living in the property, so it may not be available to those who have been living alone.
- Interest rolls up on the lump sum provided for the period in which someone lives there - so if that person is relatively young and healthy, the amount available via this route could be relatively small compared with the property value.
There are also some products which may be suitable for those couples where only one needs care (domiciliary or otherwise) and they need to self fund.
To find out the remaining three funding options available to you, keep an eye out for next months newsletter.