Equity release schemes and the Fair Deal Scheme are two pathways that can help Irish homeowners fund later life care and maintain financial flexibility. But what happens when these two options intersect? If you are considering equity release and foresee the need to rely on the Fair Deal Scheme for future nursing home care, understanding how each impacts your eligibility, finances, and estate is crucial. This guide will walk you through how both lenders and the Health Service Executive (HSE) view equity in your home, and what you must know before making any major decisions.
Understanding the Fair Deal Scheme
The Nursing Home Support Scheme, widely known as the Fair Deal, aims to make nursing home care accessible and more affordable for Irish residents. Under the scheme, you pay a portion of your income and assets towards your care costs, and the HSE pays the balance. While this sounds straightforward, there are important complexities, especially regarding how your primary residence and its equity are assessed.
How Contributions Are Calculated
- Income Contribution. Up to 80 percent of your income may be factored into your personal contribution after allowable deductions.
- Asset Contribution. 7.5 percent per year of your assets, including property, is included. The family home’s value is capped at three years’ contribution, so you will never pay more than 22.5 percent of your property’s value (or 15 percent if you are a couple, each for three years).
Most people do not have enough liquid cash to make these payments upfront. The scheme’s optional Nursing Home Loan allows contributions from the property to be deferred and repaid upon sale or posthumously from the estate.
The Role of Equity Release Schemes
Equity release allows homeowners to access cash tied up in their homes, often through a mortgage or “lifeloan” product, which typically becomes repayable upon sale or death. These schemes can provide an important resource for financial flexibility and meeting major costs, such as home improvements or health expenses.
However, both the HSE (through the Fair Deal) and any equity release lender will want security on your property. Each party seeks to ensure enough equity remains so that debts will be repaid, creating potential complications.
How Equity Release Affects Fair Deal Eligibility
When you avail of equity release, a charge is secured against your home. Similarly, the HSE registers a charge against your home when you choose to defer Fair Deal’s nursing home costs. Here lies the challenge:
- All parties want repayment. Both your lender and the HSE need confidence that there will be sufficient equity left in your home to repay their respective loans.
- Accumulating interest. Lifeloan products, such as those by Spry Finance or Seniors Money, allow you to avoid repayments during your lifetime, but the interest compounds, significantly increasing the amount eventually owed.
- Priority of claims. If the value of the home does not cover both debts, one or both parties may not be repaid in full. This risk makes the HSE wary of approving the Fair Deal loan in the presence of an existing equity release mortgage.
Practical Illustration
Imagine a retirement-age homeowner in Dublin with a property valued at €426,000 planning to take out a €100,000 equity release. Under Fair Deal, the HSE might require up to €96,000 (22.5 percent of home value over three years). If the interest on your equity release grows over time, the combined sum of both debts could easily exceed the remaining equity in your home. This is particularly true with “lifeloan” products, where no repayments are made and interest compounds year-on-year.
Current Lender and HSE Approaches
- Repayment-Type Equity Release. If you or someone else can make regular repayments, the risk to the HSE (and your lender) is reduced. However, most people interested in equity release are retired and do not have significant income to repay loans.
- Lifeloan Equity Release. The compounding nature of these products sharply raises the amount owed over time.
Some lenders now permit a borrower to “ringfence” a portion of their property (e.g., 20 percent) to remain untouched by their loan, in exchange for a slightly higher rate. However, this may still fall short of fully protecting the HSE’s interest, especially as Fair Deal requires up to 22.5 percent of the property’s value.
The HSE’s Stance on Equity Release and Fair Deal
Presently, the HSE will likely refuse to offer a Fair Deal loan if there is an active equity release on the property unless it is absolutely clear that enough equity has been preserved to cover the HSE’s charge. This can force you into private nursing home funding, where costs can be significantly higher, often between €5,000 and €8,000 per month.
What If You Already Have Equity Release
If you already accessed an equity release, especially a lifeloan, you may be required to consolidate previous loans into any new arrangements, which can become very expensive. You may also need to provide a guarantor or evidence that you can cover the additional required equity.
Partial Solutions
- Ringfencing Equity. Some lenders allow you to protect a portion of the home’s value but be aware you may still need to demonstrate an ability to meet the HSE’s minimum required share.
- Negotiation with the HSE and lender. Occasionally, direct negotiation and legal advice can help structure agreements that satisfy both parties, but this is not guaranteed.
Estate Planning and Protecting Your Assets
Given the complex interplay between equity release and the Fair Deal Scheme, expert estate planning becomes vital. Proper planning can help you:
- Reduce the assessed value of assets by placing part of your estate in trusts or other vehicles.
- Structure your affairs to maximise what can be passed on to loved ones.
- Ensure inheritances are safeguarded against unforeseen nursing home charges.
Engaging professionals who specialise in property, elder law, and estate planning, such as HOMS Assist, can help you develop strategies for asset protection and inheritance management.
Tips Before Making a Decision
Seek Professional Advice
Do not make decisions around equity release or entry into the Fair Deal Scheme without tailored legal and financial advice. Each case is unique, and a misstep can cost your family dearly.
Consider Alternatives
- Private family funding. Direct contributions from family can sometimes provide more flexibility and reduce the impact on your estate.
- Other savings and investments. Consider using other financial resources before turning to home equity.
- Timed transfers or gifts. With advice, it may be possible to make gifts or transfers years in advance of requiring care, legally reducing assets assessed under Fair Deal.
Understand All Costs
Remember, even with Fair Deal, not every cost is covered. Out-of-pocket payments for therapies, activities, and other personal expenses may still arise.
How to Move Forward with Confidence
Equity release and the Fair Deal Scheme both offer ways to manage the realities of funding care in later life, but combining them is not simple and often not advisable without careful planning. Prior to taking out equity release, especially a lifeloan, assess your likelihood of needing nursing home care and weigh the impact on your estate and heirs.
Professional advice is essential. Explore estate planning options, ringfencing strategies, and tailor-made legal structures with experienced advisors who understand both sides of the equation.
If you have concerns about preserving your assets, securing a legacy, or managing care costs, reach out to expert legal and financial advisors for a personal, empathetic consultation. Doing so now can provide clarity and ensure both your own care and your family’s future are well provided for.
