Elderly people and their relatives are facing massive interest charges on care home bills in an unexpected consequence of the property market slump…
Families unable to sell the homes of those going into care are being forced to run up debts with the home or council because they cannot pay the fees.
Private care homes can charge interest on money owed immediately. Local councils can take a 'charge' against the elderly person's home, meaning they are entitled to their money when it is sold – but they cannot charge interest until 56 days after the person has died.
The average time to sell a home has now stretched to more than 24 weeks and many take far longer to shift, so families can face hefty interest bills by the time a property is sold.
Both private homes and councils appear to be cashing in on the crisis by charging interest rates far above normal mortgage rates. And there are suggestions that rates being charged by some local councils are unlawful if they are unreasonable.
The Nursing Home Fees Agency – a specialist adviser on care home fees – says it is receiving desperate calls daily from families of the elderly unable to meet care costs because of the delay in selling properties.
Philip Spiers, Managing Director of NHFA Care Fees Advice , says, "The amount of interest local councils can charge is up to their discretion. The only stipulation is that it must be a reasonable rate; nine per cent seems extraordinarily high when you consider you can get a mortgage for far less.
"Families are under undue financial pressure to fund their relatives' care. Private care homes may allow unpaid fees to accrue as a debt, though some charge a hefty interest rate. One caller to our advice line quoted nine per cent and another was offered eight per cent.
Best-buy mortgages are set at just under six per cent and Halifax's standard rate is 7 per cent. Even large personal loans, made without the security of a property backing them, can come in at under nine per cent.
Some councils charge as little as one point over base rate, and the National Association of Financial Assessment suggests in its guidelines on deferred payments that the interest rate should not exceed the County Court Judgment rate of eight per cent.
A spokesman for Brent Council says, "As a public body, Brent Council has to strike a balance between charges on estates and cost to council taxpayers, as the council has to finance the debt until it is paid.
"The interest rate is in line with rates set by other London local authorities. Should there be any exceptional or extenuating circumstances as to why the period of interest should be changed, then this would need to be considered through the formal complaints procedure."
Other options are to rent out the home, though many will need refurbishing before they can be put on the market, or to take out an expensive bridging loan.
Property companies which specialise in distressed sales offer well below market rate to desperate families.
Source: The Daily Mail