Your guide to equity release and care fees

Chris Torney / 14 September 2016

A big issue is how to pay for care; one option is an equity release plan



An increasing number of older people find themselves in need of some form of care in later life.

This can take the form of care at home, with regular visits from care workers to help with the likes of cleaning or administering medication.

In more serious cases, it could involve moving out of the family home and into a residential care home.

Questions to ask care homes

For a lot of families, one of the biggest issues is how to pay for this care. Depending on what assistance is needed, local authorities will often subject those who need care to a means test to see how much (if any) of the cost they should cover.

In some instances, bills can run into hundreds or even thousands of pounds per month, particularly in the case of residential care.

Equity release to cover care costs

If you are struggling to meet bills for care in your home, one option is to use an equity release plan. 

This allows you either to borrow an initial lump sum or regular amounts against the equity in your property: the money borrowed accrues interest but the capital and interest are only repaid when you die or move into full-time care, usually from the proceeds of selling your home.

If your spouse needs to go into residential care but you remain in the family home, the value of the property should not be included in the local authority’s means test. 

As such, the bills you have to pay for residential care should be lower (depending on what other income and assets you have). 

But again, equity release could be an option for covering any bills while allowing you to remain in your home.

What is equity release used for?

If you use a “drawdown” equity release scheme to take smaller, regular amounts, this can help keep your interest bills to a minimum. 

Interest is only charged on the money as you receive it, whereas if you released a large initial lump sum, interest would be charged on the whole amount from the start.

If you already have equity release

If you or your spouse need to move into care after you have signed up for equity release, this can have an impact on the bills you are asked to pay by your local authority.

When it conducts its means test, it may look at the equity you have in your home as well as any savings you have. 

If you still have a large lump sum from your equity release deal, or if you are receiving regular income from it, this could mean you are asked to pay a bigger proportion of care costs.

However, the fact that you have taken money out of your property could mean that, for the purposes of the means test, you are viewed as having a lower level of assets – and this could work in your favour when it comes to how much you are charged for care.

Will equity release affect inheritance?

If your council believes you have taken out equity release in order to “cheat” the means test – known as “deliberate deprivation of assets” – then it is within its rights to ignore the equity release deal and assess you on the basis that you still own all the equity in your home.

Generally, the longer your equity release deal was taken out before it was apparent you (or your spouse) needed care, the less suspicion it is likely to attract.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.