Care homes: selling your house to pay for care
The downturn in the housing market is causing problems for those who need to sell their house to pay for care. Dan Parton reports.
In this article:
This ol’ house
Deferred payments
Other options
Be realistic
This ol’ house
For many older people, moving into residential care is a stressful experience with emotions running high as people leave their family home for the last time. And for many prospective residents this stress is compounded by the current slump in house prices, which is leaving people unsure how they will pay for their care.
With house sales at a 30-year low, older people who had banked on selling their houses to pay for care increasingly have to find alternative funds.
Philip Spiers, acting CEO of advisory service First Stop Advice, says increasing numbers of people are seeking advice about this, especially as older people’s homes are often more difficult to sell: “Older people’s properties tend to be the last to sell anyway because often they’re not in a pristine state – they might need a bit of work doing to them.”
Nevertheless, Philip believes residents should not worry about being evicted from their care home as there are ways that fees can be met until the house is sold.
For example, residents can initially enact the 12-week property disregard. Here, people with savings of less than £22,250 – excluding property – only have to pay a contribution, dependent on their savings, to their care fees for the first 12 weeks after moving into the care home. The local authority makes up the shortfall – but only to a point.
Philip adds that local authorities only assist up to the standard rate they pay for state-funded residents – often much less than self-funders pay. “So the chances are they [the residents] are in a care home that is considerably more expensive than the local authority is prepared to fund, so they have to top up.”
The resident has to top-up the difference out of their own savings, or rely on other means, such as family or loans.
Meanwhile, people with savings of more than £22,250 are not eligible for the disregard and have to pay their care costs themselves.
Deferred payments
After the 12 weeks have ended, if the property has still not been sold care home residents revert to being self-funders and pay the total cost of their care themselves.
But again there are ways to mitigate the burden. Many local authorities operate a deferred loan scheme, whereby it continues to pay care fees in the same mode as the 12-week disregard. But unlike that the money does have to be repaid once the property is sold, says Pauline Thompson, policy adviser on care finance at Age Concern.
This is already happening. In West Berkshire, the council announced it had recently paid the nursing home fees of 9 residents up front – costing it £200,000-£250,000 – because they were unable to sell their houses and meet their fees.
While Pauline says that a deferred loan is useful, she warns there can be hidden costs. “If the resident dies before the house is sold then after 56 days the local authority is allowed to charge interest on the debt,” she says. “The local authority is able to choose what rate of interest they charge, but it should be reasonable.”
However, there is no guarantee that a local authority will agree to a deferred loan agreement. Many are already trying to deal with budget deficits and should the economy worsen may become increasingly reluctant to provide a loan, especially when there is no guarantee of when they will get their money back.
Other options
Nevertheless, there are other options. For instance, if the house is empty, it can be rented out and the proceeds used to pay care fees. “The whole problem about having a deferred payment is that you’ve got an empty house, but still have all the insurance issues, the upkeep etc. We know some families do rent the property out once the person is in a care home, so they can use the rental income to lower the amount that they have to pay back in the long term,” Pauline says.
But if renting is not an option, and the house is left unoccupied while the family endeavours to sell it, they will not have to pay council tax on it. Properties left empty by someone moving into a residential care home are exempt, according to the Department from Communities and Local Government. To apply for this exemption, contact your local authority.
Additionally, care homes may be willing to help residents, says Janet Davies, managing director of Symponia, a financial advisory firm focused on the care sector. “Care homes are commercial entities, but by their very nature they are also caring and… some are rolling up debts, knowing that people will pay once the property is sold,” she says.
There are also specialist companies that provide funds, such as bridging loans and equity release, for people that are trying to sell their home. Some can also handle the sale process on behalf of clients, Janet adds.
Finally, an immediate care plan, a type of annuity that can be purchased when a person needs care and provides a guaranteed income in exchange for a lump-sum investment, could also be used to help pay for care. But to be successful this requires a large amount of savings in the first place.
Be realistic
But people in residential care also have to be realistic when selling their house, Janet says. “The market isn’t completely stagnant; people may have to accept a more realistic price for the property because there have been reductions in prices. Properties are still selling, but not as quickly as they did.
“Houses in this country have always been worth what people will pay for them. In a buoyant market, prices reflect that – they are higher because people want to buy property and can buy it quickly. When the market stagnates then people will still buy, but it is a buyers market and prices are reflected accordingly.”
But whatever happens to the housing market in the coming months, Janet says that older people and their families should not worry unduly about selling a house. “I don’t think anybody would be evicted because they couldn’t pay their fees just because their house isn’t selling.”
Moreover, it emphasises the need to take specialist financial advice from advisers who know the marketplace before moving into residential care to assess all the options available to them, Janet adds.
“Before you think all is lost, you don’t know what to do and mum can’t go into a care home, speak to a financial adviser who will be able to give you all the options.”
For more ways of maximising your income to finance residential care, read Top 10: financing residential care.