Next Easter will see the fifth anniversary of the day that, unwittingly, my mother left her own home for the last time, aged 85, her dementia having reached the stage where 24-hour professional care was the only practical option. I’ve returned a few times since then in this column to the challenges of managing her financial affairs after she went into residential care. As that anniversary approaches, it is becoming clear that our efforts to create additional income for her and preserve her capital as far as possible are reaching their limits. We may soon need to think again.
Unlike many in her position, she is far from poor, although it quickly became clear when my siblings and I took over her affairs that she was well short of the monthly income she would need to meet her care home bills. She needs £32,400 a year to pay these, leaving aside any other expenses she might have. That equates to an annual income before tax of nearly £40,000—just shy of the 40 per cent tax threshold and well above the national average wage. In practice, it equates to her state and occupational pensions, all the additional income we can generate for her, plus a chunk of her capital each year.
To bridge the shortfall we need to find her an extra £1,000 or so a month after tax. So far, we’ve managed to come within striking distance of this through a range of income investments. The opening of the market in corporate bonds to retail investors through the London Stock Exchange’s Order Book for Retail Bonds, launched in 2010, has been a big help, as has the availability of generous feed-in tariffs for solar panels. The bulk of the income, however, has come from her refurbished holiday property in the West Country, which we have been letting to holidaymakers since May 2011.
So far we have been lucky with this—it’s a very pretty spot and has proved popular, even attracting visitors during the winter months. This year, however, I get the sense that things are changing. Bookings for the later part of the year are down on where they were 12 months ago and inquiries have virtually stopped. In part, I put this down to conditions generally—the big drop in retail sales for September strengthened my suspicion that consumers are feeling more squeezed and that low-season weekend breaks are a luxury few can now justify.
Another big factor is our rising running costs. After some problems last year, we concluded we had to bring in a firm that specialises in running holiday properties to carry out changeovers and be on call in case guests needed help. We were lucky to find an excellent outfit run by a young local entrepreneur and, since her company became involved, we have received excellent online feedback from visitors. But our running costs have inevitably gone up and although we now have much greater confidence in the quality of what we’re offering, we also have to charge more for it. I strongly suspect that this will make the income we receive much more seasonal and leave us well short of where we need to be through the winter.
If my suspicions are correct, by next autumn we will have to be ready to try something different, perhaps moving to a long-term tenancy that would produce a lot less revenue but would also shift more of our running costs on to the tenants. The other option, of course, would be to sell. But although that may become inevitable after our mother is gone, the house that she bought nearly 40 years ago and where we spent family holidays remains intimately connected in our minds with her. We no more want to say goodbye to that place than we do to our mother. Most investors struggle to put their emotions to one side and we are no different.
