Equity release

Equity release can help a client pay for long-term care without having to sell the home. It’s more suited to people who choose to receive care at home, instead of moving to a residential care home. Equity release can help pay for the costs to modify a home, or meet the expense of a domiciliary care company providing care in the home. 

If a client is receiving care in a residential care home it’s not so straightforward. This may be a suitable option if the equity release plan is in joint names, the partner can remain in the home for life or until they move into a long-term care home. When this happens, the amount due to the equity release provider is paid from the sale of the property.

For a single person who's moving into a care home an equity release plan won't be appropriate because the conditions for selling the property will have already been met.

Types of equity release

There are two main types of equity release products:

  • Lifetime mortgage - This is a loan secured against the property, which doesn’t have to be repaid until the last surviving borrower sells the property, dies or moves permanently into a care home. Interest is charged on a compounding basis, which means we charge interest on the loan plus any interest already added. There are also some lifetime mortgages which allow your client to pay some or all of the interest charged each month to reduce the overall cost of the loan. The money can be paid to your client as a lump sum or as a series of payments.
  • Home reversion - A client can choose to sell all or part of their property at less than its market value in return for a tax-free lump sum, a regular income, or both, but stay in their home as a tenant, rent-free. These products are less popular today than lifetime mortgages.

Advantages

  • Your client can use the equity in their property to fund their care, without having to move out of their own home.
  • Equity release products must have a "no negative equity guarantee". This means that when your client's property is sold, even if the amount left is not enough to repay the outstanding loan to their provider, neither your client nor their estate will be liable to pay any more.
  • The option to release money as a one-off lump sum or as a regular income. A lifetime mortgage can also provide the option to release smaller amounts as and when required.
  • For a lifetime mortgage, the loan is usually repaid on death, sale of the property or entering a care home.
  • The equity released on your main property is tax-free.

Disadvantages

  • Generally isn’t a suitable option for someone entering a care home, unless it’s held in joint names and the partner is staying in the home.
  • For a lifetime mortgage, interest is charged on a compounding basis, which means interest is charged on the loan plus any interest already added.
  • If your client chooses a Home Reversion product, they may receive considerably less than the full market value for their property.
  • It might affect your client's entitlement to means-tested state benefits.
  • The inheritance your client passes on to their beneficiaries will be substantially reduced and won’t include their home itself.

Who might this option be suitable for?

  • Someone looking to release funds as a one-off lump sum, in smaller amounts as and when required or as a regular monthly income for a fixed term, to be drawn from their property to pay towards care needs.
  • Someone owns their own home and who would prefer to keep their property rather than downsize.
  • Someone with a high-value property but minimal savings or investments who would like to choose and pay for care in their own home. 

Equity Release Council

The equity release market is regulated by the Financial Conduct Authority. Most equity release providers are also members of the Equity Release Council. Membership means they must adhere to strict standards. These include:

  • No negative equity - Whatever happens, someone can never owe more than the value of their home.
  • Right to remain - There is a right to stay in the home for life, or until permanent residential care is required.
  • Portability - People have the right to move to another property so long as the new home is acceptable to the product provider.

Useful sites

We've selected a range of articles and further information on funding care with equity release.