Analysis by charity FirstStop Advice and The Herald shows that it is self-funders, those who sell their own homes to pay for a care home place, who are paying the price for the financial crisis in the sector.
The average income shortfall of a pensioner selling their home to fund care costs has rocketed from around £5000 a year in 2007 to more than £16,500 this year in Scotland, compared with an average shortfall of just under £15,000 in England and Wales.
For self-funders, average care home fees have jumped by 31% in Scotland, the highest rise in the UK, to hit £28,128 or £542 a week (£504 a week is the UK average).
Pensioners’ income by contrast has risen in line with inflation at 13%, while house prices are on average static over the period in Scotland (down 9% in the UK).
Most significantly, the yield available from the capital of a sold property has plummeted by 80%, with deposits typically yielding 1% against 5% four years ago.
Philip Spiers, director of FirstStop Advice, an arm of the Elderly Accommodation Council charity, told The Herald: “We are lobbying to try to get local authorities to pay more for people’s care needs. The sad thing is that care homes have to put their fees up particularly for self-funders, to subsidise low local authority rates.
“It is grossly unfair that self-funders will be paying £100 to £200 a week more than somebody in the next room funded by the local authority.”
Dr Altmann said: “A rescue plan for failed homes is needed urgently. The Government and local authorities may have to step in and take control of the situation.”
Darlington-based Southern Cross, which cares for 31,000 residents in 750 care homes across the UK, recorded losses of £311 million in its last six months, and is threatened with administration if any of its landlords refuses to accept the company’s unilateral 30% cut in rental payments for the next four months.
Age Scotland this week reported a wave of calls to its helpline from older residents and their carers and relatives. Nan McCabe of the helpline said: “The calls are a mixture of anxiety and panic, with some relatives expressing anger that this situation has been allowed to develop and wanting to know which body is responsible for maintaining a watching brief on the financial situations of such establishments.”
Sector analyst Paul Saper has said he expects “over the next week or two, landlords will start to take back their homes”.
The landlords include other major care home operators such as Bondcare, which owns 39 of the homes, and Four Seasons, which owns 45, and which is 40% owned by the Royal Bank of Scotland after it underwent its own financial rescue.
Southern Cross’s problems stem from its ownership by US private equity group Blackstone between 2004 and 2007, when it sold off all its properties and had to lease them back.
Age Scotland spokesman Lindsay Scott said: “This sorry saga raises questions about the ability of private providers to replace public sector provision. It should also refocus the Scottish Government and Cosla (Confederation of Scottish Local Authorities) on the increasingly unassailable argument for bringing social care and the NHS together into a single national care body.
“After all, the state has a statutory responsibility to ensure that the care needs of the country’s vulnerable older people are met and it is only right that their relatives too have a reasonable amount of certainty over their futures.”
However, Westminster’s Health Select Committee chairman Stephen Dorrell MP has said the Government should not consider a bailout.
“It doesn’t seem to me that it’s the taxpayers’ job to fund the losses that have been suffered by the people who invested in Southern Cross, that was their risk and it’s their loss,” Mr Dorrell told the BBC.
A Downing Street spokesman told one newspaper this week that the Government would ensure there was “effective protection in place for residents who might be affected”, if their home was in jeopardy.
Dr Altmann added: “Beyond this immediate critical situation, report after report flags up an impending catastrophe in social care and still nothing is happening.
“Local authorities keep cutting back and more and more people lose their homes to cover care costs. The current situation is unfair and unsustainable – it shames us all.”
FirstStop Advice’s figures show that, compared with four years ago, capital realised from a property and used to fund care home fees is being eroded at an alarming rate.
Mr Spiers said: “Taking into account above-inflation rises in care costs coupled with reductions in both property values and deposit rates means that compared to 2006/07, when care costs could just about be funded from the proceeds of an average home, in 2010/11 with economic trends stacking against you your capital will rapidly deplete.”
FirstStop’s calculation for the UK is that after five years in a care home, somebody who had sold an average property would be over £53,000 worse off at today’s costs than they would have been at 2007 values.
Mr Spiers added: “The consequences of this are going to be catastrophic for older people who are self-funding their care homes for more than a few years – and for councils, who are going to have to pick up the costs far earlier than ever before.”
FirstStop Advice strongly urges older people contemplating a move into a care home to seek advice. It says: “They should ensure they receive an assessment of their care needs to ensure the council will fund them if required, maximise any state assistance they are entitled to and consider alternatives to leaving property proceeds on deposit.”
The charity has a free guide entitled Choosing and Paying for a Care Home that is available by phoning 0800 310 20 11 or by visiting its website at