BLOG: Housing equity: a long-term care funding solution for the future?

It’s safe to say that the issue of long-term care has been a thorny topic for those in power, and a point of concern for the general populous, for a considerable amount of time, and the pandemic has only served to amplify the underlying issues surrounding care provisions for a vulnerable section of society.

Recent research from Canada Life has highlighted the shifts in landscape that have occurred as a result and which (like working patterns) could become a mainstay of regular life, as and when relative normality resumes. The research has found that 55% of those questioned were rethinking their care plans as a result of COVID, and were undecided on how they’ll fund it; 19% of those previously open to care homes were now erring away from it, and of that particular sub-section 38% were looking to move either to assisted living or to smaller and more manageable properties.

It also comes at a time when people are accessing and draining their savings at an alarming rate, to the extent that the pensions regulator has expressed concern that 42% of pension pots are being raided at ‘unsustainable’ rates (i.e. at more than 8% annually). This is naturally understandable given the wider environment, but raises the question: if existing savings are being regularly accessed to fund everyday expenses, how will both current and future retirees fund any care provision they may need in later life?

Looking at the wider landscape, housing equity is a natural conclusion, given the state of over-50s property ownership. Additional research from Canada Life released in October has highlighted that there’s a combined UK total of £591bn of unreleased equity (with the South East totalling £123bn – the equivalent of £107,966 per household). These figures highlight the level of property wealth held by those in later life at present, and by extension the degree to which it could potentially be used to fund their care in the future.

Additionally, over-50s have benefited from recent rises in house prices. Research from SunLife has shown that over the past 20 years over-50s homeowners have seen their average property value rising from £113,000 in 2000 to £240,000 in July of this year. Significant rises in house prices in July and August have also meant that the average house value among over-50s rose over £7,000 in those two months alone.

With the data supporting the idea that the current generation of retirees potentially face a future where they’re asset rich and cash poor, property may play a vital role not only in retirement planning as a whole, but also specifically when it comes to long-term care.

Those who do explore equity release will be greeted by a market which has not only grown immensely over the past couple of years, meaning there are more plans than ever available to choose from (in 2020 a new product was released every 28 hours, and as of August 2020 there were 535 whole-of-market plans available, a 510% increase from 2017), but have also become ever more flexible as the market adapts to changing customer needs.

Figures released by the Equity Release Council in August 2020 highlighted a 126% year-on-year increase in the number of plans catering for sheltered or age-restricted accommodation, and by September 60% of products were available to potential customers who owned (or were looking to own those types of properties. This means that those looking to move to such facilities could still access additional funding needed to receive the levels of care in later life, while existing plan holders could potentially transfer their plan to an age-restricted property if required.

There’s still a lot of work to be done in bridging the knowledge gap between the equity release industry and the wider public, however. Many either hold misconceptions or aren’t aware of the ways it could potentially be used as a retirement planning tool, meaning that as an industry greater consideration needs to be given in terms of raising awareness of its potential uses and the possibilities it gives for people to receive the levels of care they desire or need, rather than what they can afford. With care costs sitting at around £600-£800 a week, and 55% of those surveyed by Canada Life not knowing how they’ll fund it, it’s arguably more important than ever that the wider public has a full understanding of all available options open to them.

With the effects of the pandemic accelerating the rate at which people are accessing their savings, it’s a critical time to ensure this key message is widely communicated among relevant stakeholders.

This piece originally appeared in the Equity Release Council’s recently Pure Retirement-supported report, ‘Solving the social care funding crisis, perspectives on the contribution of property wealth’. The full report is available now.

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