Downsizing your home to fund your long-term care
You need to find a way of self-financing your long-term care and you own a home that’s larger than you need. Could the answer be staring you in the face?
- Could downsizing be the answer?
- How does downsizing compare?
- Additional benefits of downsizing
- Do the sums
- Make sure you get proper estimates
- Other things to consider
- Next steps
Could downsizing be the answer?
Selling your existing home and buying a smaller, less expensive one instead could free up money to pay for your care costs.
It could also provide you with the opportunity to live somewhere that might better cater for your needs now and in the future.
Apart from a smaller house you could consider other options, for example a bungalow, retirement property or sheltered and extra care housing.
How does downsizing compare?
Downsizing seems a much more straightforward option than some of the other self-financing options available, but there’s a lot to consider.
Downsizing v equity release
Downsizing probably won’t raise as much money as an equity-release scheme but it will usually be a more cost-effective option.
Home reversion plans (where you sell all or a part of your house but retain the right to live in it) only ever offer a fraction of a property’s market value.
Whereas when you downsize you sell your property on the open market.
Downsizing v immediate need care fee payment plan
An immediate need care fee payment plan works a bit like an annuity.
You pay a lump sum and receive a guaranteed income for life to fund your care.
This can give you the reassurance of knowing that you’ll receive a regular payment to cover the costs of your care for as long as you need it.
There are potential tax advantages if the payment is made to a registered care provider, as the payment does not count as taxable income.
But you might have to downsize your home to provide the money to buy the plan, leaving you with a lesser property to pass on to your family.
Downsizing v investments
With downsizing, you know the figures you’re dealing with and exactly how much money you will have to put towards your care costs.
If you were using investments to pay for your care, the return you make might rise and fall with the value of the funds and might not be sufficient to cover your care costs.
Downsizing v insurance
With insurance products, not only do you pay ‘just in case’, there’s always the chance they won’t cover everything you need.
With downsizing, you stay in control of your funding and there are fewer complex legalities for others to deal with after you die.
Additional benefits of downsizing
Moving to a bungalow, a serviced apartment in a retirement village or into sheltered housing can bring other advantages you might not have considered.
- Your new home might be easier to maintain.
- Accessibility might be easier, so you can stay in your home for longer.
- A move might actually reduce the cost of your care, although modifications to the new property – such as installing a stair lift, or extending or converting a ground floor space – can be expensive.
Do the sums
Stamp Duty, legal fees, estate agency charges and other fees can easily run into tens of thousands of pounds, depending on the size and location of your property.
Start by working out how much your care could cost and then see how much you can put towards the cost by downsizing.
Be realistic – downsizers are often overly optimistic about how much money they can generate.
This may be because they’ve over-estimated what their property is worth, or they’ve not properly calculated the cost of the smaller property or the costs involved in moving.
Step 1 – What are your care costs likely to be?
Work out the total cost of your care using the Care in the UK costs calculator on the BBC website.
Step 2 – How much will you raise by downsizing?
Check how much your current property might be worth, along with the likely costs of a smaller property, using an online property valuation guide, such as Zooplaopens in new window.
Step 3 – Work out how much it will cost you to move
Make sure you get proper estimates
Did you know?
It’s estimated that four out of ten people spend more than expected on their new home.
Working out if downsizing will raise enough money to cover the cost of your care is a serious business.
Don’t just take a stab at the figures – get proper quotes from everyone involved.
Other things to consider
Care costs might rise as you get older or if you fall ill, so remember to factor that into your calculations.
As a last resort though, you will have equity in the smaller property you buy, which you can always release at a later date if you really need it.
Finally, consider the other pros and cons of downsizing that go beyond your finances.
Selling and buying can be a stressful process, and moving to a smaller property or new location might affect your quality of life.
But downsizing can also make your day-to-day life easier and might give you the opportunity to move closer to friends or relatives.
Elderly Accommodation Counsel is a charity that can help you find retirement properties of all kinds and has useful tool that can help you assess the suitability of your home - How well does your home suit you?
Downsizing is only one of the ways to help self-finance long-term care.
To explore all the options and discuss which one’s best for your individual circumstances, speak to an independent financial adviser.
Especially if you’ve not been through the process of selling a property for a while.