Equity release: what happens when you go into long-term care?

Equity release and long-term care

If you have an equity release plan and need to go into long term care, unless you have a spouse or partner who is entitled to live in the property it will be sold to repay your equity release provider.

To help you understand all about equity release and long-term care, we explain the following in today’s blog:

• What is equity release?
• What happens to my equity release plan if I go into care?
• Can my partner stay in our home if I move into long-term care?
• Can we access further funds from our drawdown plan if one partner is in care?
• What happens if we both move into long-term care?
• Can I live with one of my children rather than move into long-term care?
• Repaying your plan after moving into long-term care
• What happens if my home does not sell in time?
• What happens if I owe more than the value of my home?

We hope this guide will help to answer your questions about equity release and what happens when you move into long-term care. Our selected advisers are also available to discuss your circumstances and offer further information and advice. Just call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment for you.

Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

What is equity release?

Equity release is a way for homeowners aged 55 or over to unlock the tax-free money from your home’s value.  There are two main types of equity release plan: 

Lifetime mortgage: These are the most popular type of plan as you will still own 100% of your home. You don’t have to make any mandatory monthly repayments as the loan plus interest rolls up each month. If you wish, you can make voluntary payments towards your plan to reduce the interest or even the overall loan.

Home reversion plan: This allows you to sell all or part of your home to a reversion company in exchange for a tax-free cash lump sum. You then have the right to live at home rent-free for the rest of your life or until you move into long-term  care.

What happens to my equity release plan if go into care?

If you have equity release and long-term care becomes necessary, then your next steps depend on whether you have a single or joint plan in place.

Single plan

If you have taken out a ‘single life’ equity release plan and move into long-term care, then the plan comes to an end and your home will be put up for sale. 

The money from the sale of your home will be used to repay your loan plus any interest on it. The remaining money is yours.

You will not have to pay any early repayment charges if you are selling your home to move into long-term care.

Joint plan

If you have a joint equity release plan and go into long-term care, your plan will not come to an end until your spouse/partner also moves into long-term care or passes away. At this point your home will be put up for sale for the loan to be repaid.

Can my partner stay in our home if I move into long-term care?

Yes, your spouse or partner can typically remain in your home if you move into long-term care, providing your equity release plan is in both names jointly.

However, if your partner’s name is not on the title deeds and therefore not on your plan, they will not be able to live there after you move into long-term care. This may mean they have to move out of the home when the house sells to pay off your loan, or buy it themselves.

If this is a concern for you then you could put their name on your title deeds when you arrange your equity release plan to give them the same rights as you. Of course, this will add time and costs to your application, but can provide enormous peace of mind for you both.

Can we access further funds from our drawdown plan if one partner is in care?

If you have a drawdown equity release plan and one partner moves into long-term care, you can usually withdraw further funds from your plan providing you meet the requirements.

To unlock more money from your drawdown plan, you both need to have the mental capacity to sign the necessary forms for the release of additional funds. 

If your partner has lost their mental capacity then you will need to have a Property and Financial Affairs Lasting Power of Attorney (LPA) in place to access further funds. 

If you do not have the relevant LPA in place and you need to access more money from your drawdown plan, you will have to make an application to the Court of Protection. You will also need to do this to access your partner’s bank account, sell your home or deal with any of their financial affairs. Unfortunately it can be a very costly and time consuming process. 

To prevent any potential issues in the future, arranging your Lasting Power of Attorneys now while you both have the mental capacity to do so can save you a lot of worry.

What happens if we both move into long-term care?

If you have jointly arranged equity release and long-term care becomes necessary for both of you, then your plan will come to an end. 

Once the second homeowner moves into long-term care, you or your loved ones will need to sell your home. You will typically be given up to 12 months to achieve a reasonable market price for your home.

Can I live with one of my children rather than move into long-term care?

Some people decide in later life that they no longer want to live in their own home and would prefer to move in with a relative, often one of their children or a sibling. 

Others have care needs that make it difficult or unsafe to live alone, but are not so severe that they have to move into a care or nursing home. 

If you wish to sell your home and move in with a member of your family then you will need to speak with your equity release provider before making a decision. 

According to the Equity Release Council, some providers will only allow you to sell your home and move in with a relative penalty-free if your medical needs require this. Otherwise, you risk paying early repayment charges for settling your loan before you pass away or move into long-term care.

If you think you may want to live with a relative one day in the future, or would like that option to be available to you, then make sure you convey this to your adviser during the application process. They can try to find a plan that accommodates your current and future needs.

Repaying your plan after moving into long-term care

If you move into long-term care, you or your next of kin will need to contact your plan provider to update them. Having your plan reference number to hand will be useful at this point.

If you are the last or only homeowner on the plan then your provider will explain what needs to be done next with regards to selling your home and settling your loan. They will also provide your final loan settlement figure. 

If your plan includes inheritance protection that ringfences a percentage of your home’s value, then you or your estate will receive at least that amount back from the sale of your home. This is irrespective of how much interest may accrue on your plan. When you arrange your plan, your adviser will check if you want to include any inheritance guarantees.

Of course, if your family wishes to keep your home and have other means of paying your loan off then they can choose how to settle the loan through other means.

What happens if my home does not sell in time?

If your home does not sell within the 12-month period following the last homeowner moving into long-term care, your lender will liaise with you, your spouse or other next of kin to discuss next steps. 

You should be aware that your lender has the right to repossess the property if it does not sell within a reasonable amount of time, but this is a last resort. To avoid repossession they will ask for regular updates and make recommendations where necessary.

What happens if I owe more than the value of my home?

Today’s equity release plans offer the reassurance that no matter how much interest accrues on your plan, you will never owe more than the value of your home. This is the ‘no negative equity guarantee’ and it’s one of the standards of the Equity Release Council, the industry’s governing body. 

So once the agents’ and solicitors’ fees are paid after your home is sold, if the amount left is not enough to settle your outstanding equity release loan, your estate will not be liable.

Speak to an equity release specialist today

If you have any further questions about equity release and long-term care, or you are thinking about arranging a plan then do make sure you speak to us.

Our selected advisers can provide you with all the free initial advice you need before searching for the best plan for you and your family. In fact, you will only be charged a fee for advice if you go ahead with a plan, which can be paid from the money you release.

To find out how equity release might work for you, speak to our friendly team on 0808 178 3055. They can connect you to one of our carefully selected advisers who can answer all your questions and check your eligibility for a plan. Alternatively, request a free call back here.