Deferred payment agreements for people who own their own home and are moving into a care home

The local council usually makes sure that the money you owe in care fees will be repaid by putting a legal charge on your property. They do 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 council get their money back even if house prices fall.

When 70% of the value of your home is deferred, the local authority should review the cost of your care including whether a deferred payment agreement is still the best way to meet your care costs.

A deferred payment agreement shouldn’t take more than 12 weeks to set up. So the agreement should be ready by the time you start to contribute to the fees. The purpose of a DPA is to avoid a homeowner having to sell their property where it is included in the financial assessment. 

Short-term stays in care homes aren’t covered by the scheme.

Care funding works differently across the UK. Paying care home fees is complex, and depends on many things unique to you.

For more information:

• Call the Age Scotland helpline for more detailed information or personalised advice on 0800 1244 222 (Monday to Friday, 9am to 5pm). For more contact details, visit the Age Scotland website
• For a variety of factsheets, visit the Age Scotland’s website
• There’s more information on the Care Information Scotland website

• For guidance and services, go to the Welsh Government website
• You can also call Age Cymru on 08000 223 444 (Monday to Friday, 9am to 5pm) or go to the Age Cymru website.

• In Northern Ireland, there’s no formal deferred payment system. But it might still be available – ask your local Health and Social Care Trust.
• Contact your local Health and Social Care Trust. Find your local trust on the nidirect website
• Call Age NI on 0808 808 7575 (Monday to Friday, 9am to 5pm) or go to the Age NI website

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.

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 council 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’s going to be a problem.

To take part in a deferred payment scheme:

• Your local authority has agreed you have care needs that should be met via a care home placement.
• You should have savings and capital of less than a certain amount, not including your share of the value of your home. In England and Northern Ireland, this is £23,250. In Scotland, it’s £18,500. And in Wales, it’s £50,000.
• You should be a homeowner or have another asset the local council 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.
• You would need to agree to the terms of the deferred payment agreement

If you meet the eligibility criteria, your local authority must discuss the option of a deferred payment agreement with you. You must request a deferred payment agreement – it cannot be forced upon you.

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.

The local council 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 council reaches half the value of your home, they’ll need to have your home revalued regularly. And there will be a valuation fee each time.

The local council fees must be reasonable and not exceed their costs. They must make a list of these charges publicly available.

Your local council might, but doesn’t have to, charge interest on the deferred payments to cover costs.

In England and Wales, the local council 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%. 

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 their death. Interest should then be charged at a ‘reasonable rate’, which is set by the local council.

If the money isn’t repaid on time at the end of the agreement, the local council might charge extra interest until the debt is settled. There might also be an ongoing administrative fee plus interest.

In Northern Ireland, there’s no formal deferred payment system. But it might still be available – ask your local Health and Social Care Trust.

Find your local trust on the nidirect website

• The local council 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.

If you’re entitled to any of these benefits, you can carry on claiming:

• Attendance Allowance
• Disability Living Allowance (care component)
• Personal Independence Payment (daily living component).

But you can also continue to get them if you paid for your care through selling your home or used an equity release product.

• You’ll 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 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 council 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.

Will the rental income, added to your other income, cover all or more than your care home fees? Then you could choose to rent out your property without taking a deferred payment agreement.

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 decide.

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 council must let you keep at least a certain amount so that you can still afford to maintain and insure your home. See the ‘Disposable Income Allowance’ section below.

The deferred payment agreement means that, after the local council 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.

Do you have a deferred payment agreement and someone jointly owns your home with you? Then, they’ll have to consent to the agreement and agree that the home will be sold when the time comes to repay the local council.

In England only, if you have a deferred payment agreement, your local council must take into account the cost of maintaining your home when deciding how much you must pay towards your care costs.

They do 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 £144 a week.

The allowance gives you enough money to pay for the costs of keeping your home, such as:

• insurance
• 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 council through the deferred payment agreement.

With so many options to choose from, it’s 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.