Drawdown Lifetime Mortgage - Conditions to qualify.

Shylock

My 84 y/o widower father has dementia and recently moved from his home to a self funded private care-home.  I have POA for him.  He has enough cash for around the next 6-9 months fees and after that the sensible thing to have done, I presume, would be to have sold his mortgage free home that he recently vacated to fund his ongoing care needs.  However, there is a complication in that my Sister, who has mental health issues and is unable to work, is still living in that home "grace & favour" as she has done for many years.  I am investigating other options for my sister but would like to know if Equity Release is a possible solution that would allow her to stay there?  What I had in mind was a Drawdown Lifetime Mortgage against the property with some regular interest repayments funded by the rent receipts of turning the property into an House of Multiple Occupancy.  Would the fact that the property is no longer the owners primary residence be a problem in obtaining a Drawdown Lifetime Mortgage?  Would using the property as an HMO be an issue?  Any other ideas fully appreciated.

DairyQueen

I am no expert but researched various options when my late mother-in-law entered residential care.

Lifetime mortgages are restricted to primary residence and become repayable when the owner (or survivor of a joint-owning couple) enters care or dies. The sale of the home is the usual method whereby the mortgage is then repaid. Such a mortgage is not designed to pay care home fees or provide a lifetime home for other family members or tenants. Your dad would not qualify for any equity-release type arrangement in his circumstances.

However...

Is your sister over 60 and/or registered disabled? If so, then the house will be excluded from your father's assets if he is assessed for local authority funding. If your father's care home offers LA-funded places then there is a possibility that, when his cash falls below the threshold (around £20,000-ish I believe), the LA will fund the balance of costs above his pension contribution. Apart from pocket money of £25 per week he will be expected to contribute all of his pension income toward the fees. The LA will then pay the balance.

The downside of LA-funding (and it can be a very big downside) is if no LA-funded places are offered, or none are available, at his current care home. In this situation, when his cash runs out, he may have to move homes and the LA-funded options may be pretty dire. 

As his attorney, you have a legal duty to always act in the best interests of your father, even to the detriment of your sister. You are legally bound to direct all of his assets toward his care and for his benefit - and his alone. 

Further more, when a property is no longer defined as the primary residence of the owner tax raises its ugly head. You would need to research the impact of CGT, income tax and IHT on your dad and his estate should the property be let, or if it becomes subject to any kind of mortgage. 

One other possibility is that the local authority may be able to offer you a loan secured against the property. This will be interest-bearing and the capital and interest will become due when dad dies so, presumably, the house would need to be sold at that point in order to repay the debt. This option may just postpone the inevitable move for your sister. I believe that strict criteria applies to these loans so I don't know if such a loan would be possible with your sister in residence.

You are in a very difficult situation OP. I fear that your dad's failure to arrange matters to protect your sister have left you with your hands tied with respect to her welfare. With the info. you have provided you may have to face the choice of LA-funding for your dad (if your sister qualifies under the house exemption) or accept that your dad's self-funded care is only possible if your sister moves.

Shylock

DairyQueen said:

...Is your sister over 60 and/or registered disabled? If so, then the house will be excluded from your father's assets if he is assessed for local authority funding. If your father's care home offers LA-funded places then there is a possibility that, when his cash falls below the threshold (around £20,000-ish I believe), the LA will fund the balance of costs above his pension contribution. Apart from pocket money of £25 per week he will be expected to contribute all of his pension income toward the fees. The LA will then pay the balance....

...Further more, when a property is no longer defined as the primary residence of the owner tax raises its ugly head. You would need to research the impact of CGT, income tax and IHT on your dad and his estate should the property be let, or if it becomes subject to any kind of mortgage.... 

Thanks for you very helpful reply, DairyQueen.  I found the above two points particularly interesting.  I will look into the Registered Disabled/LA Funding scenario. However, it hadn't occurred to me that there may be a CGT impact of him moving into residential care. He only moved in in mid February and then Covid hit, so it's only now that I'm starting to get to grips with the situation moving forward.  I will do some research, as you suggest.