Mum needs care — but how will she pay for it?
Our personal finance expert is here to answer your questions on everything from currency to credit
QMy mother is 91 and recently returned from hospital after a fall. She now can’t look after herself but wants to remain at home. She can’t afford to pay for carers on her pension. Is there some way to release money from her home to pay for them? She has no mortgage and the house is worth £470,000.
ABeing asset rich but cash poor is a common problem for older people, and the financial services industry has come up with a number of solutions to the problem.
The most common is an equity release mortgage whereby cash is raised against the value of the home but doesn’t have to be repaid until the person dies or goes into care. Interest is added to the loan which means it grows quickly but most companies promise the debt will never exceed the value of the house.
There are two main types of equity release —lifetime mortgages whereby money is borrowed against the value of the house and home reversion schemes. With these a percentage of the house is sold to the equity release company for cash. Your mother can choose to take the money as a lump sum or draw down cash as and when she needs it if she takes this route. Equity release companies are currently charging around three percent fixed for the lifetime of the loan.
An alternative is a retirement interest only mortgage. This works like a normal mortgage and the amount of borrowing is based on income and affordability, rather than her age and value of the property as with equity release. The downside for your mother is that interest needs to be repaid each month which won’t help with her cash flow issues. Also many companies will not offer this type of mortgage to people over 90. She may also be able to get a later life mortgage which again works like a more traditional mortgage with regular repayments.
Will Hale, chief executive of specialist retirement adviser Key Later Life Finance, says: “The starting point for the advice process is likely to be a discussion around not only what your mother wants, but also the type of financial, emotional and practical support the wider family and local council can provide. Unfortunately, as your mother owns a home worth £470,000 outright on her own, the amount of support she can expect from her local council is limited but it is worth speaking to them as she may be eligible in future as the rules are changing in October 2023.”
I would recommend contacting the Equity Release Council equityreleasecouncil.com as a starting point. They represent 90 percent of the equity release market including the likes of Aviva, LV= and Legal & General and specialist advisers.
As part of the discussion with your mother, she should consider drawing up a Lasting Power of Attorney which gives you, or whomever she choses, the power to make decisions on her behalf if she becomes physically or mentally unable to do so for herself.