"“Our home, our money, our choice – Government keep out of it!” seems to be the general mood music."
As her new minority Government licks its wounds, was it the ‘Dementia Tax’ wot did it for Theresa May and, if so, what impact might this have on the equity release market?
Whatever political outlook you have or colour ribbon you pin to your mast – virtual or otherwise – there is no denying that the Conservative Manifesto pledge around Social Care and the use of housing equity to meet those costs for, well, just about everyone who owns a home made a significant impact on the party’s General Election fortunes.
Politicians often talk of ‘trial balloons’ or ‘kite flying’: testing out or ‘floating’ potential policy ideas through press releases, interview soundbites and even leaks in order to gauge public opinion and help avoid any embarrassing political U-turns later on.
This balloon was made of lead and nose-dived from the moment it was launched.
The very fact that the tabloid press assigned it the highly emotive ‘Dementia Tax’ moniker, like the ‘Bedroom Tax’ before it, destined this idea to be reviled amongst the general public and, ironically, most notably amongst the demographic most likely to vote Conservative – retired, home-owning, Middle England voters aghast at the thought of the eponymous “Tax Man” depriving them and their heirs of their most prized asset.
We British are a funny bunch when it comes to property. The “our home is our castle” mentality pervades to the point that the very idea we might use some of this cash to pay for long-term care – never mind being “forced” to by Government legislation – is an anathema to many. “Our home, our money, our choice – Government keep out of it!” seems to be the general mood music.
Rather ironic, then, that there are already lots of people using housing wealth for their care needs.
Many people will want to stay in their own property for as long as possible rather than downsize to a more manageable property (one without stairs, a smaller garden etc) or be moved into residential care. While care needs can vary dramatically, for some people this could mean simply making minor modifications to the home (installing a stair lift, for example) or hiring in a “home help” to take care of basic household chores such as gardening, vacuuming and ironing. In most cases, this form of care would not be supported by a Local Authority and so would have to be funded privately, through equity release for example.
Once you start to factor in more personal care needs such as help with washing and dressing, costs can mount up dramatically to tens of thousands of pounds each year, depending on how often you have carers visiting your property. It is at this point that residential care is usually the most appropriate solution and one that may – or may not – be funded by your Local Authority.
One point not raised during the ‘Dementia Tax’ debate was the fact that a Government scheme already exists that allows people to fund care costs by using their housing equity. Deferred Payments arrangements can be made with Local Authorities whereby costs are met up front by LAs and then recouped after you die through the sale of your property. However, as LAs have to fund these arrangements themselves, not unsurprisingly they are not all that popular or widely publicised.
Whatever Government schemes exist in the future relating to social care costs and how they are funded, equity release will remain as a viable and indeed far more flexible solution for many. As well as providing funds for home help and basic care needs, equity release can transform the retirement finances of clients in many other ways, from debt consolidation to gifting and intergenerational lending.
Indeed, if future Governments choose to revisit the idea of using some of the £1.8 trillion of housing wealth owned by those aged 55+ in the UK to help meet spiraling care costs (and it seems inconceivable that they won’t), this should be yet another positive growth driver for the equity release market as it will help to shine a light on this product set and illuminate the benefits of using housing wealth as part of a retirement planning strategy.