Deferred payment agreement
A deferred payment agreement is a long-term loan you can request from your local authority (Northern Ireland excepted). It’s applicable if you don’t have enough money to pay care home fees and are finding it difficult to sell your home, or don’t wish to sell your home.
It is effectively a bridging loan to cover your care home costs, using your home as security. Under a deferred payment agreement the council will pay your care home fees and secure the loan against your property. You can delay repaying the council until you choose to sell your home, or until after your death.
This will all be outlined in an agreement with the council, which you will need to sign.
Who is eligible for a deferred payment agreement?
Before you can apply for a deferred payment agreement, you must first have been assessed by your local authority as needing to move into residential care (or you are already in a care home).
In England, all councils are required to offer deferred payments if you meet the following criteria:
- you’re receiving long-term care in a care home or soon will be
- you’re financially assessed as having less than £23,250 in savings, other than the value of your property
- you’re a homeowner and there isn’t anyone else living in the property, such as a spouse, partner, child or a relative aged 60 years or over.
In Wales, you can request a deferred payment if:
- your savings or other assets are less than £50,000 (excluding your home)
- you don’t have other income which is able to meet the costs of your care
- you have a beneficial interest in the property
- there’s no outstanding mortgage, or the outstanding mortgage will leave sufficient money to fund the cost of care.
In Scotland, you may be eligible for a deferred payment if:
- your savings or other assets are less than £18,000 (excluding your home)
- You have insufficient income to pay your care home fees
- Your property has not been disregarded in your financial assessment (e.g. if a spouse or dependent is living in the property)
- You are legally entitled to grant a standard security against the property.
Local authorities aren’t obliged to offer a deferred payment, but if they don’t, they must give the reason in writing.
Will I pay interest on a deferred payment agreement?
Local authorities are entitled to charge interest on the deferred payment, but the government sets the maximum interest rate they are allowed to charge. In England, this is based on gilt market rates plus an extra 0.15%; the rate is revised every six months. There are similar processes for calculating interest in Scotland and Wales.
- The maximum rate for England was set at 1.45% for 1 January–30 June 2020.
Local authorities can also include additional set-up fees and administration charges. But these should only be set to cover the costs involved in making the loan. They aren’t allowed to generate a profit from the arrangement.
When the property is sold, the executor of the estate will be liable to repay the debt out of the estate, although they are not themselves personally liable.
Can I keep my income if I enter a deferred payment agreement?
Before approving a deferred payment agreement, the local authority will carry out a financial assessment.
Firstly, they’ll look at your savings and assets – these must be below the relevant threshold (e.g. £23,250 in England) in order to qualify.
Next, they’ll consider any income that you have, including the state pension and any other benefits or private pension income. Unless you have a relatively low income, they will usually expect you to use part of your income to make a weekly contribution to the care home costs. However, they must also allow you to keep a certain amount per week, known as ‘disposable income allowance’ (currently £144 a week).
So, you should be able to keep up to £144 a week of your total income - anything above that will most likely be used to contribute towards care costs.
Any income contribution that you do make under the agreement will reduce the total amount you need to defer - so there will be less to pay back when the property is sold.
Challenging a local authority decision
If you feel you have been unfairly denied a deferred payment, seek clarity from the local authority about the reasons for this, and make a formal complaint if necessary.
12-week property disregard
Under certain circumstances, when a local authority is assessing how much you should contribute towards your care costs, the value of your property may be disregarded for the first 12 weeks of care. This can give those who are eligible some valuable breathing space before making important financial decisions, such as whether to sell your home to pay for care.
For example, if you decide to permanently move into a care home in England, Wales or Northern Ireland that has local authority-funded placements, and you own your own property, have low income and your savings are below the capital threshold (for example, £23,250 in England in 2020-21), then the council must ignore the value of your property for the first 12 weeks of your stay. After 12 weeks, the value of your property will be counted as part of your capital and you will be required to pay the full cost of your care.
You don’t need to sell your property: you may choose to rent it out or apply for a Deferred Payment Agreement (see above) to cover your ongoing care costs. You can seek other sources of funding to pay for your care.
Local authorities can apply the 12-week disregard when you are already in permanent care if there is a sudden or unexpected change in your financial circumstances.
In Scotland, the rules are slightly different; the threshold for savings is £28,500 (2020-21), and although the property owner is entitled to the 12-week disregard unless the property is sold within that time, the disregard period can start from the time the decision is made that the stay in the care home is permanent (which may be longer than 12 weeks in some circumstances).
If you sell your home before the end of the 12-week property disregard
In these circumstances, it’s likely that your capital will then exceed the capital threshold. You will then become responsible for paying your own care costs from the date your property sells.
Attendance Allowance and the 12-week property disregard
While you are in receipt of the 12-week property disregard, any Attendance Allowance you are being paid will be stopped after 28 days. This is because if you receive any council funding, you’re no longer entitled to receive the allowance. It should be reinstated automatically at the end of this period, but it will be worth checking your bank statement when the time comes, just in case.
If you’re able to pay for your care in full from your income, then you may want to consider declining the offer of a 12-week property disregard and to continue to claim Attendance Allowance throughout. The benefit of the allowance may be greater than the benefit of the disregard. Seek advice from your local authority if this scenario applies to you.
Government funding might be available to help pay for a care home. We explain the means test and other rules.
Find out how a top-up fee can make up a shortfall between council funding and the full cost of your chosen care home.
We explain how to cover the costs of a care home if you are a self-funder, and what happens if your money runs out.