The government is pressing ahead with a new cap on social care costs. This means that there will be a limit on how much we pay for care in old age so that it shouldn’t be necessary to sell our homes. Will this policy work for everyone, as house prices are so diverse?
Shadow health secretary Jonathan Ashworth has called the new measures ‘a care con’ because of the North-South divide in house prices.
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How do house prices affect the social care cap?
From 2023, no one in England will have to pay more than £86,000 towards the cost of their care in total. This will make a significant difference to some families, especially those with no savings. Sometimes, the cost of long-term care can amount to much more than the price of a home.
Criticism of the cap highlights the fact that £86,000 could represent the entire value of a home or more in the North of England. In contrast, this figure might be small compared to the value of a home in the South, where house prices are significantly higher. Therefore, a homeowner in the North will lose a higher percentage of their assets.
What kinds of payments count towards the social care cap?
Anyone with assets of less than £100,000 will receive some help towards care costs from their local council from 2023. In this case, those living in areas with cheaper house prices are more likely to receive these contributions straight away.
A person starting to pay for care, with assets over £100,000, will have to find all the money themselves. Once all their assets dip below £100,000, or they reach the £86,000 cap, they will get help with paying for care.
Contributions from the local council towards care costs, for those with assets of less than £100,000, don’t count towards the £86,000 cap. In addition, only payments for care are eligible to be counted, not payments towards living costs such as accommodation and food.
Are higher house prices an advantage with a cap on social care costs?
Economist Sir Andrew Dilnot reported to MPs that “there is a sort of North-South axis to this, that people living in northern and other less high house price areas are likely to be hit harder by this on average.”
Living in an area with high house prices does not necessarily equate to a higher disposable income or savings with which to pay for social care. In this case, homeowners need to raise money by borrowing, perhaps through equity release. This means that people who are initially self-funding reach the £86,000 threshold more quickly.
Once all your available funds have dwindled to £20,000, the council takes over the payments completely. Following a move to residential care, families may have to sell the family home unless a dependant or spouse is still residing in it.
In a region where higher house prices predominate, a proportion of assets may still remain after the house is sold. A fixed cap on costs will affect the proportion of assets that will be inherited. The higher the house prices, the more will be inherited.
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With different house prices, is the social care cap fair?
If everyone pays a maximum of £86,000 towards their care, that seems fair because it is the same price. On the other hand, some people may be able to raise that money from savings and pensions without it affecting their property at all. In contrast, the entire value of a home could be lost in regions with low house prices and low savings.
The government won’t be adjusting the policy to take house price variations into account. This acknowledges the burden of higher mortgage payments in more expensive areas and avoids a kind of social care property tax.
Rules for paying social care costs are different in Wales and Scotland, where house prices are lower. So there could be scope for further regional variations.
Can I avoid selling my house to pay for care?
£86,000 is a sizeable amount of money to find if you don’t have savings, investments, or other property to sell.
The cap gives people a clear idea of what they need to plan for. One solution for people in high house price areas would be to downsize to an area with lower house prices and save or invest enough to cover the cost of future care. This would not be an option for people who already live in a cheaper area.
Boris Johnson has suggested that the social care cap will enable insurance companies to offer solutions.
Paying for long-term care is a huge and complicated commitment. If you need advice on future care costs, it’s best to consult a specialist financial advisor.
