Equity release may seem like a great idea if you need some cash for yourself or someone close to you, but watch out for the hidden costs…there is no such thing as a free lunch!
Are you over 55?
If you are over 55 you may be familiar with the frequent adverts encouraging you to consider equity release on the property you own. It may seem like a wonderful, painless solution – no need to fork out from your savings or take out a loan. The reality, however, can be quite different and cost you far more in the long run.
Impact of Equity Release
Having seen the impact of equity release, I am personally not a fan. A seemingly small loan against your property can become very significant in a short space of time, especially if there are no payments being made against the loan. This is typical for a lifetime mortgage where interest and costs just compound. A home reversion mortgage could have equally devastating consequences.
Check the options of the loan you are taking as some do not allow you to repay until you either die or sell. Your property could be at risk of being repossessed if the loan becomes more than a specific % of the property value. Becoming aware of this impending reality may give you no choice but to drastically downsize – against your true wishes, at short notice and without any spare cash normally associated. You (and/or your partner) might need to move to a property which suits your needs better. The remaining equity, together with your ability to get a loan or mortgage, may not be enough to meet your needs. Make sure you find out all the facts before entering into the contract.
I would urge you to seek out all other alternatives first and to look very carefully at all of the small print. Check the interest rate and charges. How and when repayments can be made effectively. Making a repayment at the wrong time can be set against interest without reducing the loan. Martin Lewis shows twitter examples sent to him where small loans had become eye-watering.
Seeking advice is helpful, but be careful to choose an independent source, such as Citizens Advice or Age UK. Ask them to explain all the risks and options open to you. Write down any questions you have before you go. Take someone you trust with you and share your questions before you go. They will be able to help you to get all the answers you need and can help you to remember important points. It can be a lot to take in, especially if financial matters are unfamiliar to you.
Martin Lewis provides a very good article on his website moneysavingexpert.com, which is well worth reading before taking any action: Should you equity-release?
You should still seek professional financial advice before entering into a contract, but you will be better equipped to make the most of their advice if you have looked into it yourself first. Make sure you have ruled out any other options first, but as a minimum compare what other providers are offering.
Funding Social Care?
If you have a loved one who has dementia, you may be considering your options to fund social care for them. Have a look at Age UK’s web page Do I have to sell my home to pay for care? Your home will not form part of any means test if you are arranging care at home or temporary residential care. Permanent residential care will trigger using your home’s value as part of the means test unless your partner or certain other qualifying relative still lives there.
NHS Continuing Healthcare
It is worth checking if an NHS Continuing Healthcare Assessment is relevant. If so, has one been carried out and by whom? Have you seen a copy of the report? If the patient qualifies then NHS will be obliged to pay for their care whether it is at home, in a Care Home or in a Nursing Home. This is not means tested, but based on the medical needs of the patient. I have come across carers, NHS staff and Care Home staff who do not fully understand the current rules. This means that success, even if you feel it is warranted, cannot be guaranteed. This does not mean that you shouldn’t try and you can appeal. As a carer you have to be prepared to ask difficult questions which can seem very daunting when you are already overloaded. Having the support of a friend or colleague can be invaluable.
Your local authority may provide the option of paying for care against the value of your home. In this case the care fees are paid by the local authority and will be repaid in full at a later date – either by yourself or a third party acting on your behalf. (Note: No repayments!) See the Age UK factsheet Property and paying for residential care. The loan will incur costs and interest, so make sure you find out in advance what these will be. Do you have any other alternative options? Could you rent your property? Does your property qualify or is it a disregarded property? A disregarded property does not qualify because a partner or relevant relative is living there.
It is sometimes quite difficult to stand up to outside pressure when you are already running on empty, however, knowing what you should be entitled to can be empowering.
No-one will have to sell their house to pay for social care
On 20th November 2019, Gordon Rayner, Political Editor for The Telegraph, wrote: No-one will have to sell their house to pay for social care under Tories, says Boris Johnson
“Boris Johnson has pledged that no-one will have to sell their house to pay for social care under a Conservative government, as he announced a £5 billion cash injection to ease the current funding crisis.
The Prime Minister will “end the injustice” of people having to sell their family home by seeking a cross-party agreement on how to pay for the soaring costs of caring for the elderly and disabled.”
On paper this sounds great! I am normally a very optimistic person, but I can’t help wondering….
Will this pledge materialise?
Is this a top-up to cash already promised?
How, to whom and over what timescale will the funds be injected?
Could the funds be diverted elsewhere?
What exactly does “No-one will have to sell their house to pay for social care” mean?
……..Neither equity release nor deferred payments would count as selling your home and would therefore not appear in any statistics.
If you have done your research, looked at all your options but still feel the need to enter into a contract for equity release, at least you will be going into it eyes wide open. Good luck!
Martin Lewis, Money Saving Expert: Should you equity-release?;
Gordon Rayner, Political Editor for The Telegraph: No-one will have to sell their house to pay for social care under Tories, says Boris Johnson