Property wealth threatened by social care bills

A lack of solutions to the social care funding crisis could mean a boom for equity release schemes. 

A lack of solutions to the social care funding crisis could mean a boom for equity release schemes. 

The looming social care crisis will lead more and more individuals in later life to tap into their property wealth in order to pay care bills.

The prediction was not made by an objective source, as it followed on from findings in a report released by Key, the UK's leading equity release provider, but the point made is a valid one as to date there has been a lack of solutions from the government.

Various possible ideas have been floated, such as a new ISA to pay for care costs in later life or a specific wealth-related tax to fund care costs in the firm of higher council taxes for those who live in more expensive properties. 

In addition, a social care premium tax was proposed by the government last summer for those aged over 40 in England, either through an additional element of national insurance or paid into a dedicated social insurance fund. 

But the proverbial can keeps being kicked down the road, as the government's social care green paper, which it is hoped will provide answers to the social care crisis, has now been delayed by 700 days.

As things currently stand, the most obvious route – indeed, the only one for many – is to tap into property wealth. Key's report highlights why, pointing out that there are 1.31 million requests for care and support from over-65s each year, but only 175,256 have their care fully funded by councils. This has been exacerbated by government cuts to council budgets and the UK's ageing population.

Moreover, Key adds, there's evidence of a social care funding ‘lottery' that leaves care patients facing huge bills just because of where they live.

The firm carried out a freedom of information request which found that on average just one in three (31%) of over-65s are fully funded for care, but that there are major regional differences.  Local authorities in the East of England are the most likely to provide full funding. On average 68% of applicants are fully funded – four times as many as in Wales and the East Midlands where 16% and 17% respectively are fully funded.

It goes on to add that more than two-thirds (77%) of over-55s it surveyed said they would like to receive care in their current home (57%) or in a more manageable property they would buy (20%).

Key adds while home care may be a cheaper option than care in a residential home, given that average costs for the latter start at £30,000, under the current means-tested care funding regime a significant number of people will need to meet this cost themselves.

But the reality is that the majority of individuals will not have other wealth to draw on, with only one in five (21%) polled by Key saying they had financial provisions to pay for care. Therefore, property wealth will be increasingly sacrificed.

With equity release, it is possible to borrow against the value of your home, sell it or part-exchange it for a lump sum or a regular monthly income. It can be expensive, though, as compound interest on the loan builds up. For this reason many financial advisers view equity release as a last resort. 

Will Hale, chief executive officer at Key, says:

"A significant cohort of people have made no provision to pay for care but won't receive help from their local authority. With more than £1 trillion in unmortgaged property wealth being held by the over-65s and home care as the main preference, we are going to see increasing numbers of people using equity release for this purpose."

Steven Cameron, pensions director at Aegon, has called on the government to provide incentives to encourage individuals and families to plan ahead for an event which could be 20 or more years into the future.

He adds: "While we wait on a new deal, thousands face catastrophic care costs, often destroying plans to pass on an inheritance to future generations.

"The government's share also needs to be adequately funded to ensure good and consistent quality of care, bringing to an end the current geographical lottery. Crucially, this needs to be carried out by care providers working in tandem with the NHS.

"Increasingly, social care will be a reality for many people in later life. Preparing for possible care costs needs to become part of managing pension, property and other savings wealth into and through retirement. Once the government sets out the new deal, seeking professional advice will ensure people make the right decisions for an uncertain future."

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