Paying for care: Deferred Payment Agreements

If you need to move into a care home permanently, the value of your former home may be considered by the Council when they work out how much you should pay for your care after the first 12 weeks of your stay.

Sometimes the value of a person's home is disregarded in this assessment, such as when a partner still lives there or if the stay in a care home is temporary.

If the value of your home is not disregarded and you don't have enough income or savings to pay the full cost of your care, you may have to sell your home so that you can pay these costs or find another way to pay.

A Deferred Payment Agreement (DPA) is one option that allows people to pay for their care without selling their home.

For more information about paying for residential care, what help is available, and whether you will need to enter a Deferred Payment Agreement, please see paying for residential care.

A Deferred Payment Agreement (DPA) is designed to help you if you have been assessed as having to pay the full cost of your care but cannot afford to pay it because most of your money is tied up in your former home.

By entering a DPA, you essentially choose to borrow money from the Council on a weekly basis to fund your care instead of selling your home straight away.

This means the payment is deferred - what you borrow under a DPA will need to be repaid later, as well as interest.

The Council will place a legal charge on your property for security while the DPA is in place.

If you have a different asset of high value, you may be able to use that for security instead.

For the DPA to be sustainable, we need to ensure the money tied up in your home, along with your other savings and investments, is enough to cover the estimated cost of your future care.

To enter a DPA, you must:

• have savings and investments (excluding the property) under £23,250,
• be assessed by the Council as requiring care in a care or nursing home,
• be permanently living in or moving into a registered care or nursing home,
• own or partly own a property that is not disregarded in your financial assessment,
• have mental capacity to enter the agreement or have a legally appointed agent (a Deputy or registered Attorney) willing to agree this.

The deferred payment amount will have compound interest added to it.

Compound interest is interest that applies to both the amount you have borrowed and the amount of interest that has already grown during the agreement. You can think of it as "interest on interest".

This means it will grow more quickly than "simple interest" would on the amount borrowed alone.

The Council will follow the interest rate set by Central Government, which is adjusted in January and July each year.

We will provide you with a statement each year to tell you how much is owed and the cost of repaying the debt.

The interest will add up in a compound way, calculated every three months.

You can, however, ask the Council to let you pay the interest separately on an ongoing basis, to avoid it growing and being compounded.

An administration fee is also charged at the start of the agreement.

This covers the cost of drawing up the legal documents and registering the legal charge at the Land Registry.

The cost can be paid at the start of the deferred payment agreement or can be added to the loan.

Interest will be charged on the administration fee if it is added to the loan.

More administration fees apply at the end of the agreement, to cover other legal costs.

If you still have a mortgage for the property, you will need to keep paying that too.

An application will need to be completed, which we can support you with.

During this process, we will discuss and agree the amount you wish to defer as well as other details.

We will aim to finalise the agreement by the end of the 12-week property disregard period, or within 12 weeks of your request.

If you are signing the paperwork on behalf of someone else, for example, as their appointed Attorney or Deputy, you will need to provide us with the original court paperwork.

This is needed to place the legal charge on the property and will not be returned until this is complete.

Before you enter a DPA, the Council will get a valuation of your home.

You can also ask for an independent valuation.

If an independent valuation gives a very different value to the Council's, you can discuss this with us and agree an appropriate valuation before proceeding with the agreement.

For the duration of the DPA, you will need to do the following:

• Make sure any necessary maintenance is carried out on the property, at your expense
• Insure the property at your expense
• Let us know if you decide to sell the property
• Tell us about any changes to your income, including rental income for the property

What you will need to pay during a deferred payment

You will still need to pay the amount you have been assessed as being able to pay from your income and other savings.

The Council will pay the part of your weekly charge that you can't afford until such time as your property is sold.

You might also decide to pay more from other savings and investments.

A third party, such as a friend or family member could also pay some of your care costs.

Paying extra might be a good option for you, as it would reduce the amount owed to the Council later.

You will need to make sure the property is maintained during the agreement.

We will let you keep some money from your income, which you can use to pay for property maintenance and insurance as well as other spending needs.

This is called Disposable Income Allowance (DIA).

You should think carefully about the amount you may need to maintain your property and the amount of income you keep.

The more you keep, the more of your care costs will be deferred against your property and need to be paid back later with added interest.

If you find yourself having to pay an unexpected cost, you can increase your DIA up to the maximum amount to help you pay it.

You can rent out your property, but you should speak to us about this first.

This could help you meet the cost of your care and reduce any future debt.

You will also be able be keep a percentage of the rent paid.

You may wish to get independent financial advice before you decide to rent out your property, so that you know how this will affect how much tax you pay and how much welfare benefits you get.

You should also consider the requirements involved with renting out a property, such as property maintenance, insurance, health and safety, landlord legislation and managing periods the property may be empty.

A letting agent may be able to help you meet these requirements, but you would need to pay for their services.

Under a DPA you can borrow up to 90% of your home's value minus £14,250.

This is known as the 'equity limit' of the DPA.

For example, if your house is worth £100,000 you could borrow up to £75,750 over the course of the agreement.

How long you defer the charges for depends on how long you are in care, and how long the value of your property can cover the cost of that care.

If you decide to live in a care home that you cannot afford long-term, we may not offer you a Deferred Payment Agreement at the higher amount.

You can ask us for a statement at any time, setting out the amount you have borrowed and how long the equity in your home - up to the equity limit - is likely to last.

We will provide this within 28 days of your request.

You can end the agreement at any time by paying the full amount owed from your personal savings or investments and arranging your own care.

A third party, such as a friend or family member, could also pay your debt for you.

You can also end the agreement by selling the property and paying the full amount owed at any time.

If you sell the property

If you decide to sell the property, you should let us know during the sale process.

You must pay the amount owed for your deferred payment from the money you get from the sale.

We will then end the charge on your property.

If you die while the DPA is in place

If you were to die while the DPA is in place, the agreement would end and the debt would be payable 90 days later.

The amount owed would have to be paid from your estate (usually via the sale of the house or a life assurance policy) or by a third party.

The executor of your will or administrator of your estate can decide how the amount is paid.

Your family, or those dealing with your affairs, may not want to sell your property after your death.

We can still accept payment of the debt by other means, but they must be able to cover the full amount owed.

Renting out your property

You could rent out your property.

This may give you enough income to cover the full cost of your care.

There are advantages to this as it would prevent future debt, but there could also be costs associated with renting out your home and requirements you will need to meet.

Using income, savings or help from family members

You may choose to pay the full cost of your care from your income and savings, or a family member may choose to pay some or all of this for you.

You will need to consider how sustainable this arrangement will be in the long-term.

Releasing equity from your home

There are also various equity release products that may be suitable for you.

Equity release products let you access the equity (money) tied up in your home.

You may be able to take the money as a lump sum, in several smaller amounts, or both.

You should get independent legal and financial advice to help you decide which option is best for you.

Borrowing

You are free to enter a different finance arrangement with another lender or financial institution, such as your bank or building society, to borrow the money needed to pay for your care.

In all cases, we recommend that you get independent financial advice before making any decisions about paying for your future care or making any financial agreements.