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 eligible, the council will help to pay care home bills on behalf of your parent. Repayments to the council can be delayed until the home is sold, or after the death of your parent.
It is a legally binding agreement with the council saying that the money will be repaid when the home is sold. The local authority will probably ask the Land Registry to place a legal charge on the property. The charge is removed when the outstanding debt is paid.
There is often a limit set on how much of the value can be used to pay for fees; most local authorities will set a limit between 70-80%.
You can usually only apply to join a deferred payment scheme after your parent has been in a residential home for 12 weeks or more. Short-term stays in care aren’t covered.
Repaying the Local Authority
Any money owing on the deferred payment agreement, including interest and administration costs must be repaid if the home is sold or your parent leaves the care home. In the event of death, the executor of the will is responsible for repaying the amount owing.
To take part in a deferred payment scheme your parent must/should:
- have savings and capital of less than £23,250 (in England) not including the value of their home (funding arrangements are different in Scotland, Wales and N.Ireland)
- be a homeowner or have another asset that the local authority can use as security
- there should be no-one else living in the property who needs to stay there, such as a spouse or partner;
- be in or planning to be in long-term residential care (not for short-term or temp stays in care homes)
Other things to know about a deferred payment agreement
- there may be legal and administration fees to cover the set-up costs
- the local authority can charge interest up to 2.16% (this figure is reviewed every six months)
- Local authorities can also offer alternative financial arrangements where the home is used as security to ensure the debt is repaid.
The advantages of a deferred payment agreement include:
- The council will pay for the costs of care so you don’t have to find the money straightaway
- debt against the value of the property is only built up while your relative is in care (so it is worth considering if a diagnosis is terminal)
- The value of the property may continue to increase in value, effectively paying towards care costs
- Your parent can continue to claim Attendance Allowance, Disability Living Allowance or Personal Independent Payment if they are entitled to.
The disadvantages of a deferred payment agreement include:
- An unoccupied property which you continue to pay upkeep and maintenance of as well as heating and lighting, insurance, any outstanding mortgage payments.
The local Authority might allow your parent to rent out the property while they are in a care home. It may be an option to rent it out anyway but this may, of course, affect your parent’s situation regarding limits of ££ income for Local Authority help. Taking advice regarding funding for care is highly recommended.