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 bigger than you need. Could the answer be simple?

Could downsizing be the answer?

Selling your home and buying a smaller, less expensive one could free up money to pay for your care costs.

It could also give you with the opportunity to live somewhere that might better cater for your needs now and in future.

Apart from a smaller house, you could consider other options. For example, a bungalow, retirement property, sheltered housing or extra care housing.

Sheltered and extra care housing are clusters of homes that share facilities, such as an on-site warden and social events. They’re usually available to rent from local councils, housing associations and charities. If you want to buy, sheltered housing is also available from some private developers.

For more information about sheltered housing, see the Age UK website

To find sheltered housing for sale, use the Housing Care online search tool

How does downsizing compare with other options?

Downsizing seems a much more straightforward option than some of the other self-financing options available. But there’s a lot to consider.

Downsizing versus 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.

Lifetime mortgages let you borrow only part of the value of your home. But the eventual repayment, when your home is sold, could take up most of the value of the property when the interest has been added.

And less common, home reversion plans – where you sell all or part of your home but are allowed to carry on living in it – only ever offer a fraction of a property’s market value. When you downsize, you sell your property on the open market and get the full value – after deducting buying and selling costs.

Downsizing to buy an immediate need care fee payment plan

An immediate need care fee payment plan is a type of annuity.

You pay a lump sum and receive a guaranteed income for life. As long as the income is paid directly to the care provider, it’s tax-free.

This can give you the reassurance of knowing that you’ll receive a regular payment towards the costs of your care for as long as you need it.

A popular way to raise the lump sum to buy the plan is to downsize your home or take out an equity release scheme.

Downsizing and investments

You might plan to put the proceeds from downsizing into a savings account or investments, which you then cash in periodically to pay for your care.

Bear in mind that the return on cash savings is currently extremely low, and rising prices (inflation) will reduce the value of your savings. They might not pay the care costs for as long as you had hoped.

If you use investments to pay for your care, the return you make can rise and fall with the value of the funds and might not be enough to cover your care costs.

Downsizing versus insurance

Insurance to cover care costs isn’t widely available and it is expensive. If you have a policy that you took out in the past, it won’t necessarily cover everything you need.

With downsizing, you stay in control of your funding and can use the money you raise to buy your choice of care services.

Other 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 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

Start by working out how much your care could cost. 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 might be because they’ve over-estimated what their property is worth. Or they haven’t 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. Use an online property valuation guide, such as Zoopla

Step 3 – Work out how much it will cost you to move

Estimate your costs using our guide about The cost of buying a house and moving

Make sure you get proper estimates

Working out if downsizing will raise enough money to cover the cost of your care is a serious business.

It’s important not to just take a stab at the figures – get proper quotes from everyone involved.

Other things to consider

  • You might want to stay in a particular area – for example, because it’s close to family, friends or your GP.
  • Smaller properties, such as bungalows, won’t always be cheaper than the larger home you’re selling.
  • Sheltered housing can be quite expensive to buy. And there will often be annual charges to pay, such as service charges and ‘ground rent’ if it’s a leasehold property. Find out more about leasehold property in our Leasehold vs freehold: What’s the difference? guide.
  • 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, if you downsize, you’ll have equity in the smaller property you buy. You can always release this at a later date if you 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 it might give you the opportunity to move closer to friends or relatives.

The Elderly Accommodation Counsel (EAC) charity can help you find retirement properties. They have a useful ‘How well does your home suit you?’ tool to help you assess the suitability of your home.

Find out more on the EAC website

Next steps

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 circumstances, speak to a financial adviser.

Especially if you haven’t been through the process of selling a property for a while.

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impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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