The cost of care-home living continues to rise at an alarming rate and is causing an increasing number of people to take drastic measures. Currently, 1,000 homes per week are arriving on the market in order for people to fund living in care.
But depending on the housing market, selling up isn’t always the most lucrative option. Releasing equity from your property is an alternative way of getting cash from your house that is not repayable until the time is right to sell.
The Basics
There are two fundamental types of equity release scheme: lifetime mortgages and home reversion schemes.
Lifetime Mortgages
- The homeowner borrows a proportion of their home’s value from the equity-release provider.
- Interest is accrued on the amount borrowed, but is not repayable until the homeowner dies or decided to sell their home
- Interest is compounded over the term of the loan
Home Reversion Schemes
- Shares (e.g. 25%) of the property is sold to the equity-release provider for less than the market value
- The homeowner has the right to stay in their home for as long as they wish
- When the homeowner dies of decides to sell their home, the provider then takes the same share(e.g. 25%) of the final selling price as repayment
So, these are the options for getting money from your property without having to sell up. However, depending on your circumstances, releasing equity is not always the best option.
Why might equity release not be right for me ?
- Equity release is only available to people aged 55 or over, and home reversions are only available from the age of 65.
- If you select a lifetime mortgage, you hang onto full ownership of your property. However, interest compounds over the period of the loan and this can be costly. If you’re leaving your house to beneficiaries, they could end up not getting much anyway depending on the interest owed.
- With a home reversion scheme you may not be able to reverse the transaction once you have sold a share of your home, and this could seriously limit your future options.
- Releasing equity could affect your entitlement to any means-tested benefits.
There are alternatives out there -
Aside from borrowing money from relatives or using other assets or personal savings to pay for care, depending on your circumstances you may be eligible for financial help. If ill-health is the main reason for moving into a care home, then you may be eligible for NHS Continuing Healthcare. Under this initiative, the NHS is liable to cover all costs, including accommodation, with no ceiling on the amount paid out, no means test and it is not age-related.
If you do decide to consider equity release, it’s important to take independent legal and financial advice and consider all your options before going ahead.
This article was contributed by Laura Moulden on behalf of Cheselden, the leading Continuing Care review specialists. Visit the website to find out more about Cheselden healthcare funding.
