If you are moving from your home into a care home and, if most of your money is tied up in your property and you have very little savings, your local authority might offer you the option of a deferred payment agreement. What this means is you won’t have to sell your home immediately to pay for the care home’s fees.
Deferred payment agreements explained
A deferred payment agreement is an arrangement with the local authority that lets people use the value of their homes to help pay care home costs.
If you’re eligible, the council will help to pay your care home bills on your behalf. You can delay repaying the council until you choose to sell your home, or until after your death.
You will sign a legal agreement with the council, saying that the money will be repaid when your home is sold.
The local authority usually ensures that the money you owe in care fees will be repaid by putting a legal charge on your property.
It does this by contacting the Land Registry to place the charge. The charge is removed when the outstanding debt is repaid.
You can’t usually use more than 90% of the value of your home to pay for fees. In practice, many local authorities will set a limit between 70% and 80%.
This is to leave you or the executor of your will with enough money to cover the sale costs and to make sure the local authority gets their money back if house prices fall.
A deferred payment scheme will become effective after you’ve been in a care home for 12 weeks or more. This is because the local authority should assist with the funding of your care and disregard the value of your property for the first 12 weeks. Short-term stays in care homes aren’t covered by the scheme.
The way care is funded works differently across the UK. The payment of care home fees is a complex subject and depends on many things which are unique to you. For more information in:
Repaying the amount to the local authority
Any money owing on the deferred payment agreement, including interest and administration costs must be repaid if you sell your home or you leave the care home.
If you die, the executor of your will is responsible for repaying the amount owing on whichever is the sooner of the following dates:
- the date on which the property or asset is sold or disposed of
- 90 days after the date of death
Your local authority might give the executor longer to repay the amount if there are difficulties or delays in repaying.
The executor should contact them if they think there is going to be a problem.
Am I eligible to use a deferred payment agreement?
To take part in a deferred payment scheme:
- you should have savings and capital of less than a certain amount, not including the value of your home (in England this is £23,250) – funding arrangements are different in Scotland, Wales and Northern Ireland, so check with your local authority.
- you should be a homeowner or have another asset that the local authority can use as security.
- there should be no-one else living in the property who needs to stay there, such as a spouse, partner, dependent child, a relative aged over 60, or someone who is sick or disabled.
- you should be in, or planning to be in, a care home for the long-term – you won’t be able to take out a deferred payment agreement for temporary stays in care.
If you still have an outstanding mortgage, check the terms and conditions and speak to your lender.
Some lenders won’t let you take out another loan secured on the home.
Are there any charges with a deferred payment agreement?
The local authority can charge you legal and administration fees to cover the costs of setting up the deferred payment. If the property is unregistered, you might have to pay a fee to the Land Registry. You might have to pay valuation costs on the property.
Interest charges on deferred payments
Your local authority might (but is not required to) charge interest on the deferred payments to cover costs.
In England, the Care Act applies so the local authority can set the amount it charges but it can’t be more than a government-approved standard rate, linked to the market gilt rate which is published every six months, plus 0.15%. Currently this equates to around 2%.
In Wales, the Social Services and Well-being Act applies so the local authority can set the amount it charges, but it can’t be more than a government approved “relevant rate”. Again, this equates to around 2%.
In Scotland, interest charges are free until the agreement is terminated by the individual or until 56 days after his or her death. After this period, interest should then be charged at a “reasonable rate” which is set by the local council.
If the money is not repaid on time at the end of the agreement the local authority might charge extra interest until the debt is settled. There might also be an on-going administrative fee plus interest.
In Northern Ireland, there is no formal deferred payment system, but it might still be available, try asking the Health and Social Care Trust.
What are the advantages of using a deferred payment agreement?
- The council will pay for the costs of your care so you don’t have to find the money straight away.
- You only build up a debt against the value of your home for the amount of time that you’re in care. If you know it is likely you might only need to spend a short time in care, for example because your condition is terminal this might be an option worth considering.
- The value of your home might continue to increase in value, effectively paying towards your care costs.
- It might be possible to let your property and use the rent towards your fees.
- You can carry on claiming Attendance Allowance, Disability Living Allowance (care component), or Personal Independence Payment (daily living component), if you’re entitled to any of these benefits.
What are the disadvantages of using a deferred payment agreement?
- You will still have to pay for the upkeep and maintenance of your home.
- You might have to continue paying for heating and lighting bills so that the house does not look unoccupied.
- You will have to keep your home insured and this might be a problem if no-one is living there.
- If you still have a mortgage on the property you will have to carry on paying it.
- House prices could fall leaving you with less money to pay back the fees.
- Letting property can be difficult to administer.
- If you already have an existing equity release scheme you might not be able to join a deferred payment scheme.
- You will lose out on interest you could have earned if you had sold your home and put the capital into savings or investments.
Renting out your home if you enter into a deferred payment agreement
Renting out your property can give you extra income to pay for your fees but there a few things to bear in mind before you do this.
- your local authority has to agree that you can rent your property. Sometimes they might offer to place tenants from their housing list into the empty property and pay rent to you.
- renting the property might mean that its value is no longer disregarded as capital and could have an adverse effect on means tested benefits like Pension Credit.
- you have responsibilities as a landlord that you might not be able to meet while in care.
- you might need to use a letting agent or get a family member or friend to manage the property for you.
- the property might not have tenants all the time or care home costs might rise faster than the amount of rent you can charge. You might not always have enough rental income to cover your fees or other costs_._
If the rental income will cover all or more than your care home fees, you could choose to rent out your property instead of taking a deferred payment agreement.
However, you would have to make sure you would have enough income to cover costs and be sure that the property would be properly managed.
If you are thinking of renting out your home, it’s a good idea to get some independent financial advice and speak to a letting agent to find out what the rental market is like in your area before you make a decision.
You would also have to consider that after 3 years of letting your property it would become a chargeable asset for Capital Gains tax purposes should you sell it at a later date.
How your income affects deferred payment agreements
Most of your income (such as your pension and certain means-tested benefits income) will have to go towards paying for your care costs before the local authority will meet the shortfall in what you can afford to pay.
In England, if you have £23,250 or more in savings and capital you will be considered to be self-funding and you will have to meet the full costs of your care.
Local Authorities can be more generous than this, so if you’re close to the limit, check whether you might be eligible.
You will have to make a contribution of £1 for every £250 of savings and capital you have between £14,250 and £23,250. This is known as tariff income.
You might also be assessed for a contribution from other income, such as pensions or means-tested benefits.
You won’t have to make a contribution from any income you get from savings or capital of less than £14,250, but you might still be assessed for a contribution towards the costs of your care from other income you get.
There are slightly different funding rules if you live in Scotland, Wales or Northern Ireland.
You should check with your local authority for how your income might affect your deferred payment agreement.
Means-tested benefits, such as your State Pension or Pension Credit will be counted when working out what you have to pay.
The Disposable Income Allowance
Under rules in the 2014 Care Act that apply in England only, your local authority must allow you to keep a minimum amount of income each week if you enter into a deferred payment agreement.
This is called the Disposable Income Allowance (DIA) and is set at £144 a week.
The allowance gives you enough money to pay for any additional costs you might have to continue paying for your home, such as:
- energy bills, and
- maintenance costs.
You can choose to contribute more towards the costs of your care and keep less than £144 a week if you wish.
However, the local authority can’t make you do this.
Get financial advice about paying for long-term care
With so many financial products to choose from, it’s really important to get financial advice before you make a final decision.
The advantages of getting good independent financial advice can help to:
- allow you to make a fully-informed decision about the best care option for you.
- give you a greater choice of care support options than you might have found by yourself.
- understand what benefits you might be able to claim, that might contribute towards the cost of your care.
- provide expert help with understanding a complex care system, particularly if you’re facing the stress of urgent care needs.
This will help you find a solution that:
- is suitable for your care and support needs.
- is affordable for you now and in the future.
- makes sure that your dependents are provided for.
- fits in with your attitude to risk and financial priorities.
- will make the best use of your income, savings and assets.
- helps you to make the right decisions about property you own
The Care Act says that local authorities have a duty to help you find financial advice.
This can range from help to filling in benefit claim forms to getting regulated independent financial advice about how best to meet your long-term care costs and the financial options for you.
Contact your local authority to find out how they can help you find your local council.
Find out more about getting financial advice to fund your long-term care.
For more about how your income affects deferred payments, see: