Deferred payment agreement: delay selling your home to pay for care
If you can’t afford care home fees and don’t want to sell your home (or are finding it difficult to do so), a deferred payment agreement may be a useful option. A deferred payment agreement is a long-term loan you can request from your local authority if you own your home (Northern Ireland excepted).
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 have been assessed by your local authority as needing to move into residential care, or you’re already living in a care home.
When you apply, the local authority will carry out an assessment of your financial circumstances. Councils should offer deferred payments if you meet the following criteria:
- You have savings or other capital (excluding the value of your home) of less than:
- £23,250 in England
- £18,000 in Scotland
- £50,000 in Wales
- You own your home and there isn’t anyone else living in the property, such as a spouse or partner, a child or a relative aged 60 years or over.
In Northern Ireland, there is no formal system of deferred payment agreements. However, it is still worth asking your local Health and Social Care Trust if they could facilitate this type of arrangement.
Local authorities aren’t obliged to offer a deferred payment, but if they don’t, they must give the reason in writing. For example, if they think your home is not worth enough to cover your care home fees.
Pros and cons of a deferred payment agreement
If all your money is tied up in property and you don’t want to sell your home, a deferred payment agreement could help you pay for care. But it’s a big decision that needs to be thought through carefully. Be aware of the advantages and disadvantages before you go down this route.
Advantages of a deferred payment agreement
- You don’t have to sell your home until you’re ready to do so
- You won’t have to pay your own care costs straight away
- You only build up debt against the value of your home for the time you’re in a care home
- If your home increases in value during this time, you'll have more funds available to to repay the council
- You might be able to let your property out and use the rent towards your fees
- It may be possible to include a top-up fee in the agreement, to cover the cost of a more expensive room
- You may still be able to claim benefits such as Attendance Allowance if you’re entitled to them
Read our guide on what happens to benefits in a care home for more info.
Disadvantages of a deferred payment agreement
- You still need to pay the maintenance costs for your home
- You’ll still need home insurance (which may be tricky to get if no one’s living there)
- If you still have a mortgage, you’ll need to keep paying it
- If the value of your property falls, you may have less funds available to cover your care costs
- If you don’t sell your home, the cost of your care will have to be repaid from your estate when you die
When can I request a deferred payment agreement?
As soon as you, or a loved one, has been assessed as needing to move into residential care, you can contact the local authority and request a deferred payment agreement.
If you are eligible for a deferred payment, it is likely that the council will disregard the value of your property for the first 12 weeks of your care home stay. This should allow sufficient time to get the agreement set up. Find out more in our article on the 12-week property disregard.
If you or a loved one already lives in a care home, but you were previously unaware of the deferred payment option, you can still contact the council and ask them to consider putting one in place.
How much does a deferred payment agreement cost?
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 is set at 0.45% for 1 January–30 June 2021
- The rate will be 0.75% for 1 July–31 December 2021
Other fees and costs
Local authorities can also charge set-up fees and administration charges. But these should only cover the costs involved in making the loan. They aren’t allowed to generate a profit from the arrangement.
If fees are charged (and they are more likely to be than not), they could cover one-off charges and annual administration fees.
- Typical one-off charges may include an application fee, charges for valuation or re-valuation of your home, and set-up and finalisation fees for the agreement. Our research shows that local authority charges for a deferred payment agreement vary considerably. In England total charges can range from about £450 to £1,150.
- Annual fees cover the ongoing cost of managing the agreement. Our research shows a wide differential in the management charges made by local authorities, and they can range from £25 to £250 per year. Some authorities include the maintenance charge in the initial set-up cost while others don’t charge any annual fees.
Check your council’s website for fees in your area. If they aren’t published, ensure you check with the local authority before signing up to a deferred payment agreement.
You will have the option of paying the fees separately or adding them onto the amount you are deferring. Any fees that you defer will accrue interest as described above.
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.
What happens to my income with a deferred payment scheme?
Before approving a deferred payment agreement, the local authority will carry out a financial assessment. Firstly, they’ll look at your savings and assets (excluding the value of your home) – 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 state benefits or private pensions. Unless you have a relatively low income, you will usually be expected to contribute part of your income towards the care home fees.
However, you must be allowed to keep a certain portion of your income. This is known as the ‘disposable income allowance’ and is currently £144 a week. Any income you have above this amount will most likely be used to contribute towards your 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.
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.