If you’re moving into a care home and most of your money is tied up in your home, your local authority might offer you a deferred payment agreement.
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, your local authority will help to pay your care home bills on your behalf. You can delay repaying them back until you choose to sell your home, or until after your death.
You’ll sign a legal agreement, stating that the money will be repaid when your home is sold.
The local authority usually makes sure 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 debt is repaid.
Typically, you can’t use more than 70%-80% of the value of your home to pay for fees.
This is to leave you, or the executor of your will, with enough money to cover any interest and administration charges, and the cost of selling the property. It also makes sure the local authority get their money back even if house prices fall.
A deferred payment agreement shouldn’t take more than 12 weeks to set up. The value of your home is disregarded for the first 12 weeks after moving into care. So the agreement should be ready by the time you start to contribute to the fees.
Short-term stays in care homes aren’t covered by the scheme.
A deferred payment agreement works in a similar way to an equity release scheme from a commercial provider. You may want to compare these to see which suits you.
See our Self-funding your long-term care – your options guide to find out more.
Care funding works differently across the UK. The payment of care home fees is complex, and depends on many things unique to you.
For more information:
Repaying the local authority
The money you owe on the deferred payment agreement, including interest and administration charges, must be repaid if you sell your home.
If you die, the executor of your will is responsible for repaying the amount owing on whichever is sooner:
- the date on which the property or asset is sold or disposed of; or
- 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.
When might you use a deferred payment agreement?
The most common situation in which you might want to consider a deferred payment agreement is when your savings and other assets (apart from your home) are low, but the value of your home is taking you over the threshold for paying part or all your care home costs yourself. A deferred payment agreement means you won’t have to sell your home during your lifetime to pay for care costs.
If your partner, a dependent child, a relative aged over 60, or someone who is sick or disabled still lives in your home, it won’t be counted as part of your assets. So you won’t have to use the wealth tied up in your home to pay for care, and you don’t need a deferred payment agreement.
Find out more in our Local authority funding for care costs – do you qualify? guide.
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 and Northern Ireland, this is £23,250. In Scotland, it’s £28,500. And in Wales, it’s £50,000.
- You should be a homeowner or have another asset the local authority can use as security.
- The value of your home is being taken into account in assessing what you should pay for your care home fees. For example, because no partner or dependant will be living there.
- You should be, 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 a 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 administration fees to cover its costs. These include:
- the cost of setting up the scheme. For example, Land Registry fees, having your home valued, legal fees, postage, phone and printing
- one-off charges later on. For example, if the amount you owe the local authority reaches half the value of your home, they will need to have your home revalued regularly. And there will be a valuation fee each time.
The local authority fees must be reasonable and not exceed their costs. They must make a list of these charges publicly available.
Interest charges on deferred payments
Your local authority might (but doesn’t have to) charge interest on the deferred payments to cover costs.
In England and Wales, 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’ plus 0.15%. Currently, this equates to just over 1% a year.
The interest rate isn’t fixed. It’s reviewed every six months in January and July.
In Scotland, there are no interest charges while you have the deferred payment agreement. Interest is charged only when the agreement is terminated by the individual or from 56 days after his or her death. Interest should then be charged at a ‘reasonable rate’ which is set by the local authority.
If the money isn’t 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 ongoing administrative fee plus interest.
In Northern Ireland, there is no formal deferred payment system. But it might still be available – ask your local Health and Social Care Trust.
Find out who your local trust is on HSC Online.
What are the advantages of using a deferred payment agreement?
- The local authority will either pay the care home direct or lend you the money to make the payments yourself. This means 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 it’s 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. But you can also continue to get them if you paid for your care through selling your home or used an equity release product.
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 carry on paying for heating and lighting bills so the house doesn’t look unoccupied.
- You’ll have to keep your home insured, which might be a problem if it’s empty.
- If you still have a mortgage on the property, you’ll 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 manage.
- If you already have an existing equity release scheme, you might not be able to join a deferred payment scheme.
You might also want to compare using a deferred payment agreement with the alternative of, for example, selling your home and putting the proceeds into a savings account.
Depending where your home is, the return from renting it out might range from between 3% and 7% a year.
From this, you would need to deduct the interest and fees for the deferred payment scheme, the costs of maintaining and insuring the home, and fees for any letting agent you use.
Even so, the return after all costs might still be higher than the very low return available on cash savings. And there could be a profit on the eventual sale of the home if house prices have risen.
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 are 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 you rent.
- Renting out the property could reduce the income you get from any means-tested benefits, such as Pension Credit.
- You have responsibilities as a landlord that you might not be able to meet while you’re 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, added to your other income, will cover all or more than your care home fees, you could choose to rent out your property without taking a deferred payment agreement at all.
You also have to consider that after 18 months of letting your property, it would become a ‘chargeable asset’ for Capital Gains Tax purposes if you sell it at a later date.
If you’re 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.
Other things to consider with a deferred payment agreement
A deferred payment agreement doesn’t affect the way your income and savings are assessed to see how much you should pay towards your care.
You’ll usually still be expected to contribute towards your care costs out of your income. However, your local authority must let you keep at least a certain amount so that you can still afford to maintain and insure your home. See Disposable Income Allowance below.
The deferred payment agreement means that, after the local authority has been repaid, there will be less money left from the sale of your home. This means that anyone who might expect to inherit from you will receive less.
If you do have a deferred payment agreement and anyone jointly owns your home with you, they will have to consent to the agreement and agree that the home will be sold when the time comes to repay the local authority.
The Disposable Income Allowance
In England only, if you have a deferred payment agreement, your local authority must take into account the cost of maintaining your home when deciding how much you must pay towards your care costs.
It does this by setting your contribution at a level that allows you to keep a minimum amount of income each week . This is called the Disposable Income Allowance and is set at £144 a week.
The allowance gives you enough money to pay for the costs of keeping your home, such as:
- energy bills
- maintenance costs.
You can choose to contribute more towards the costs of your care and keep less than £144 a week if you prefer. That would reduce the amount you owe the local authority through the deferred payment agreement.
Get advice about paying for long-term care
With so many options to choose from, it’s really important to get financial advice before you make a final decision.
A financial adviser specialising in later life can provide expert help with understanding a complex care system, especially if you’re facing the stress of urgent care needs.
Find out more in our Get financial advice on how to fund your long-term careopens in new window guide.