My grandmother is in a care home and the savings that we have used to pay for this are about to run out.
Can she be forced to sell her house that we are renting to pay for her care? The value is £160,000. My mother has power of attorney. Is it possible to release capital and not sell the house?
Sarah Coles, personal finance expert at Hargreaves Lansdown, says your grandmother’s experience is unfortunately all too common. The average cost of residential care is more than £30,000 a year, so few people have the available savings to keep them going for very long.
I’m assuming you and your mother moved into your grandmother’s house after she went into a residential home. When the council assessed whether she had the ability to pay her own fees, they would have included the value of her home, so she was assessed as having enough capital to pay all her care bills.
However, this doesn’t mean she can be forced to sell her home as this can only happen in very specific circumstances. It means you have some options when it comes to funding care.
It’s worth thinking about whether to sell up. All of the alternatives may allow you to continue renting the home while your grandmother is alive, but they would all require it to be sold after her death in order to repay the debt. It means you’ll have to move eventually. In the interim, interest on the amount you borrow will add up, which will eat up more of the equity in the property in the long run.
If you were to sell now, you could use the proceeds to buy an immediate needs care annuity. For a one-off lump sum, the annuity is guaranteed to pay a monthly sum for life, which can cover the care fees. If they are paid direct to the care home, it will be free of tax too. The cost of the annuity will depend on your grandmother’s age and state of health. It also varies between providers, so it’s essential to shop around for the best deal.
Alternatively, you can use equity release to free some of the capital in the property using the power of attorney — assuming it covers her financial affairs. Any equity release company will need to be happy with the arrangement, and will want to see the attorney documents. Some will also want to see proof that the proceeds will be used for your grandmother’s benefit. You will also need to find an equity release company that is happy for the property to remain rented out. Some will apply stricter criteria to the lending as a result.
If you use equity release, you need to understand just how much it can end up costing you. There will be a set up cost, and usually any interest on the loan will roll up, and needs to be repaid when the property is sold. The longer your grandmother lives, the more the interest will cost.
Finally, there’s the option of a deferred payment arrangement with the local council, which becomes an option once your grandmother’s savings (excluding her home) have dropped below the threshold. The council adds up the care fees payable during your grandma’s life. After her death, you can sell her home and repay the debt, along with any set-up fees and interest that has built up in the interim. Councils tend to charge less interest than a commercial equity release scheme, so this could end up a cheaper option. If you want to continue to rent out the property you should be able to do so, but the council will need to agree to it.
Catriona Lumiste, a later life adviser and care fees planning specialist with the Society of Later Life Advisers (Solla), says it is reassuring to know your mother holds power of attorney for your grandmother but there are lots of other things to think about. Is this also in place for health and welfare? Has your grandmother had a benefit check recently? Is she in receipt of attendance allowance? Has she been assessed for NHS continuing healthcare and NHS-funded nursing care? I would suggest you explore these areas to help you understand exactly what the shortfall in care costs will be.
Deferred payment agreements are designed for people who have been assessed to pay the full cost of care home fees but cannot afford to pay the full cost immediately because their capital is tied up in their home. Under this scheme your grandmother would not have to sell her property to pay for her care.
The council must offer your grandmother a deferred payment agreement if they have assessed her needs and agree that she needs to be in a care home; she has capital of less than £23,250 (not including the value of her home) and her home is not disregarded for the purposes of the charging assessment.
Once the council has calculated how much your grandmother will be required to contribute each week from income and capital, all other costs including top-ups and any additional care costs can be deferred, subject to the amount of equity in the property. Renting the property to generate income to put towards the care costs will reduce the debt.
The equity limit is determined by the value of the property, less any mortgage or loan secured against it, minus 10 per cent, minus £14,250. This provides your grandmother and the council with protection from any fluctuation in property prices.
The deferred payments build up as a debt (the council will charge interest and administration costs), which is repaid when the property is sold. If you decide not to sell the property during your grandmother’s lifetime, the debt must be repaid to the council from her estate within 90 days of her death.
The council will put a legal charge against the property. This gives them the right to have first call on the proceeds of the sale of the property or to take the property back if you don’t pay back the money borrowed for the care costs.
The decisions individuals and families may face when looking at issues such as care funding need careful and considered advice. Solla (Society of Later Life Advisers) specialises in advising on the financial needs of older people. If the process is started early this will afford a greater number of options that may be available to fund the cost of care now and in the future as needs change.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to email@example.com
Our next question
My ex-wife and I parted amicably more than 10 years ago. Assets were distributed. She kept ownership of the London house, I of one in the West Countr. I undertook to pay her just under half my occupational pension income in perpetuity. We have no dependent children or relatives.
She has not re-partnered, but I have. She sold the London house and now owns two properties in the north of England. I’ve traded down in house size twice and sold nearly all my family possession to make ends meet, but my finances are suffering and I am getting close to being unable to continue the payments to my ex.
I’ve recently read that the courts may be taking the view that divorce settlements should either divide the assets or provide maintenance payments, but not both. I also read that maintenance should not be in perpetuity but for a set time to give the partner time to re-establish their life. Can you advise on the current attitude of the courts?
Date published: 11 September 2018
Word count: 1347
Copyright The Financial Times Limited 2018
© 2018 The Financial Times Ltd. All rights reserved. Please do not copy and paste FT articles and redistribute by email or post to the web.