Taking out a Deferred Payment Agreement

A Deferred Payment Agreement is a loan or arrangement with your local authority that’s secured against your home at a fixed interest rate. However, while local authorities can charge interest they may choose not to. The loan is set up to be repaid after you die and your home is sold.

You’ll sign a legal agreement with your local authority agreeing to repay:

• the money owed
• any added interest, and
• any annual administration charges.

To take out a Deferred Payment Agreement you have to meet the following eligibility criteria:

• You must be living in a care home.
• The value of your assets excluding your home must be less than the upper means-test threshold.

The regulations state that you can borrow up to 90% of your home’s value for a Deferred Payment Agreement less the lower means test threshold.

Local authority means-tested thresholds – 2022/23

For example, if you live in England and your house is worth £100,000 you could borrow up to £75,750  under a deferred payment agreement with your local authority.

The actual loan amount could be lower and will depend on how much your local authority is prepared to lend. Some authorities will lend less to:

• leave you, or the executor of your will, with enough money to cover the costs of selling the property, and
• to make sure the local authority gets their money back if house prices fall.

Your local authority will decide if you can take out a Deferred Payment Agreement. You can be refused if:

• there’s another charge against your home, or
• if the authority doesn't think it'll get it's money back.

Advantages of a Deferred Payment Agreement

• You’ll have complete certainty about the cost of your care fees being deferred and how this debt will be repaid.
• If the local authorities charges interest as part of your agreement, the interest rate will be reviewed twice a year and there is statutory limit on the maximum rate that can be charged.
• The set-up cost and any annual administration charges can be paid separately or added to the loan amount.
• A Deferred Payment Agreement can be good if:
  • you’re not ready to sell your home yet
  • you’re finding it difficult to sell your property – and need more time, or
  • you want a cost-effective bridging loan so you can sell in the future when prices may be better.
• As your home hasn’t been sold, you can carry on receiving the following benefits (if you already get them):
  • Attendance Allowance 
  • Disability Living Allowance (care component), or
  • Personal Independence Payment (daily living component). 

• It can be combined with renting out your home  - which can help keep the loan cost down.

Disadvantages of a Deferred Payment Agreement

• Your care costs aren’t written off – they’re just delayed. The cost of your care will have to be repaid by you or your estate.
• As this is a loan, your agreed interest and charges are added to the cost of your care fees. Interest is usually applied on a compound basis. This means you’ll pay interest on interest already incurred, as well as the care fees.
• This route is likely to reduce the amount of inheritance you can leave.
• You’ll have to carry on paying maintenance costs and insurance for your home.
• If your property is unoccupied, you may have to pay ongoing lighting and heating costs: 
  • to make it look inhabited, or
  • to meet insurance requirements.
• You may find it tricky to get insurance for your property if no one is living there.
• If house prices fall you could find yourself with less money to repay your care fees.
• You could lose out on interest earned from selling your property and putting the funds into savings or investments.

Who qualifies for a Deferred Payment Agreement?

Find out if you could qualify for a Deferred Payment Agreement or help with care fees from your local authority.

Take advice about paying for care

If you have to pay your own care fees, you should take advice from a qualified care fees financial adviser. This adviser can:

• look at your finances
• discuss your options with you, and
• recommend how you can cover the cost of your care fees – both now and in the future.

A care fees financial specialist will know how the system works. They’ll also be able to identify other sources of funding that you might be eligible to receive. You can use our care fees adviser directory to find someone local to you.