Conservative manifesto - Elderly home owners paying for their care

In the just launched Conservative party manifesto, an interesting new policy proposal has been revealed: those needing care, paying for it through the value of their home. In this article, I’m not going to discuss the rights or wrongs of the policy; but has the government really thought through how it will be managed to the benefit of the elderly people needing it?

According to a Guardian article, ‘The Conservatives will attempt to soften the blow by promising that pensioners will not have to sell their homes to pay for their care costs while they or a surviving partner are alive. Instead, products will be available allowing the elderly to pay by extracting equity from their homes, which will be recovered at a later date when they die or sell their residence.’

So, how will this occur? It’s clear that a new breed of lender will appear in the market, who will lend money to owners in need against the latent value of their property.

Such questions arise as: To raise the necessary borrowing for care, how will the property’s value be assessed and by whom? Will it be ‘open market value’ or ‘forced sale price’? As it will not go on the market, it is likely to be the latter, so a base price will be proposed.

What percentage of the property’s assessed ‘value’ will the owner be able to borrow and at what rate? It is clear that, given the vagaries of the property market over time, the lender will not want to be exposed to these any more than absolutely necessary, so is likely to lend against a ‘below market price’ figure. Also, will the lending rate be in line with everyday mortgages or more onerous? People need to ask these questions now.

As funds will only be needed as fees have to be paid, will the homeowner forced to borrow the whole amount up front, therefore having a higher final repayment, or can funds be drawn as the fees to carers/homes are needed, so the borrowing is staged?

When the owner eventually passes on, who will ‘sell’ the property, the beneficiaries or the ‘lender’? Who will propose the price? How much autonomy will the beneficiaries have over agreeing the final sale price or will the lender only be interested in covering the outstanding loan? If there is an uplift in the price, will they want a percentage of that?

These are just a few of the issues which with just a little thought spring to mind. The lender clearly benefits by receiving interest payments; the government gets the benefit, not having to pay for or deliver the service; what about the owner and the beneficiaries? It’s complicated...

Paul Bonett  F.N.A.E.A.  M.A.R.L.A.