Using equity release to pay for care

Can you use equity release for care fees?

Written in line with our editorial policy.

Some people are not eligible for 100% funding for care, due to the level of their assets or income. Others may be eligible, but wish to buy extra care beyond what their funding supports. An option that you may therefore consider is using equity release to pay for care.

There are circumstances where you can use equity release for care home fees, or to pay for care at home. Equity release is a big decision however, so we’ve put together this guide to help you understand the main issues:

• How does equity release work?
• Who qualifies for funding towards their care?
• Can you use equity release for care fees?
• How can I use equity release for care fees at home?
• Alternatives to equity release to pay for care at home
• Equity release and care home fees.

If you’d rather talk through your circumstances and questions with an expert, please call us on 0808 178 3055 or request a call back. We can arrange an appointment with one of selected equity release advisers to get the help and advice you need. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

How does equity release work?

Equity release is a way to unlock tax-free cash from the wealth you’ve built up in your home, without having to sell up and move. Available to homeowners aged 55+, it’s an option when alternatives such as downsizing are not suitable or possible.

A lifetime mortgage is the most popular type of equity release. This is a loan secured against your home. You don’t need to make regular repayments, because the loan plus interest are usually repaid through the sale of the property when you pass away or move into long-term care. Any money left after paying off the loan and interest will go to your beneficiaries.

Who qualifies for funding towards their care?

Before considering whether equity release is an appropriate way for you to pay for care, it’s important to assess what’s available for free. 

Clear rules are in place about eligibility for local authority or NHS funding for care, delivered either at home or in a care home. Assessing eligibility differs slightly across each country in the UK. Broadly speaking however, it is likely to be a combination of:

• Assessing someone’s care needs. 
• Designing a care plan and confirming how much it will cost.
• Carrying out a financial assessment ‘means test’ to see how much the individual can afford to pay towards their care.

Whether someone qualifies for full or partial funding depends on their assets and income. Here are links to information about the criteria in England, Northern Ireland, Wales and Scotland. Contact the Adult Social Services Department of your local authority for more information, or your Health and Social Care Trust if you live in Northern Ireland.

Can you use equity release for care fees?

There may be circumstances when you might wish to consider using equity release to pay for care. Perhaps you don’t qualify for any care funding due to the value of your home. Or maybe you want to arrange more care services than funding can support. 

In either scenario, using equity release to pay for care may be the answer. It’s a way to access some of the value in your home as tax-free cash without having to sell or move.

One thing to consider, however, is whether releasing equity will affect your eligibility for care funding. Releasing equity from your property could take your savings over the threshold, and you may no longer be entitled to funding. 

Next, we’ll look at some specific scenarios around using equity release to pay for care. You can of course also call call our team on 0808 178 3055 or request a call back to arrange an appointment with one of selected equity release advisers. They can look at your own unique circumstances and advise on issues around equity release and care costs.

How can I use equity release to pay for care at home?

Care at home can vary from having a carer visit once a day, to having live-in carers for 24-hour support. If you do find that equity release is appropriate for paying for some or all of your care at home, you have options. In particular, you can decide how much to release (subject to eligibility) and when you take your cash.

Let’s look at some scenarios for using equity release for care fees while still at home:

Release a lump sum to buy a care annuity

If you know that you will require care at home on an ongoing basis, one way to pay for it is with a care funding plan known as a care annuity. It’s a type of insurance policy that provides you with regular income to help fund ongoing care fees. These regular payments will typically last for as long as you live.

You purchase a care annuity with a single lump sum of money. Therefore, a suitable type of equity release to pay for care could be a lump sum lifetime mortgage or a home reversion plan.

Release equity in smaller amounts over time to pay for care when it’s needed

A care annuity is typically designed to pay for regular care costs for the rest of your life. But you may need care just for a specific period, for example if you expect to recover from an illness or injury. Or you may just prefer not to commit to a care annuity for life.

A way to use equity release to pay for care on a more flexible basis in situations like these might be a drawdown lifetime mortgage. You take some of your money as an initial payment, and the rest is held ‘in reserve’ for you to access through further withdrawals over time.

As well as this flexibility, an advantage of a drawdown arrangement is that interest doesn’t mount up as quickly as with a regular lump sum plan. This is because you only pay interest on the cash you have actually released, rather than the total sum held in reserve.

Alternatives to equity release to pay for care at home

It‘s important to think carefully before deciding whether equity release is the right way for you to fund care at home. Alternatives to equity release may be available, which may prove more cost effective for you and your family. These may include using your savings, downsizing or remortgaging.

If you talk to one of Equity Release Wise’s selected advisers, they will help you explore your other options, as well as equity release. To talk to an adviser, please call us on 0808 178 3055 or request a call back and we will arrange an appointment for you.

Equity release and care home fees

Using equity release for care home fees is more complex than at-home care. To unpick the complexity of equity release and care home costs, here are some possible scenarios:

A couple where one person needs to move into long-term residential care

Let’s take the case of a couple that hasn’t already taken out equity release, and one of them needs to go into residential care that requires self-funding. Equity release could be a way to pay all or some of the care home fees.

As this would be a joint decision, it would require the person going into care to have appropriate decision-making capacity. Alternatively, a Property and Financial Affairs Lasting Power of Attorney (LPA) might be required. This allows the spouse/partner or other nominated person/s to make financial decisions on someone’s behalf.

The person staying at home would have the right to live in their home until they pass away or move into long-term care. At this point, the home is sold to repay the loan.

We should stress that this won’t be a solution that’s right for everyone, and alternatives may prove more suitable or cost-effective. For professional advice tailored to your unique circumstances, please call us on 0808 178 3055 or request a call back and we will arrange it for you.

A single person who needs to move into long-term care

On a single-life plan, the plan ends when the plan holder goes into care. That’s why it wouldn’t be possible to take out equity release for care home fees if a single person needs to go into residential care. 

If a single person has already taken out an equity release plan and later on moves into long-term care, the property is sold to repay the equity release provider. Any money left after the sale of the property can be used however you wish, including to pay for care home fees.

Discuss your circumstances with an equity release adviser

It is very important that you get advice on equity release, including when looking at equity release and care home fees or at-home care costs. 

The Financial Conduct Authority (FCA) regulates equity release. The FCA Handbook lists standards for advisers to follow. These include making sure that an equity release plan is suitable for someone’s needs and circumstances. 

For example, you should consider whether the benefits of equity release outweigh any impact on your entitlement to state benefits. Our selected advisers can explain this to you in more detail.

Our selected advisers are FCA-authorised and work to the FCA standards when providing information and advice.

Call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment to explore your options. Family members can of course be involved in any decision making about equity release and care home costs or the cost of care at home.