Deferred Payments Agreement

What is a deferred payment agreement?

A deferred payment agreement is an agreement between the Council and a person whose needs are being met in a care home.

A deferred payment agreement means that the costs of a person’s care home are delayed until an agreed time in the future. The costs are deferred (delayed), but they are not ‘written off’. The costs must still be paid at a later date. Most commonly, a person uses the value pf their home as security for a deferred payment agreement, and their home is sold later to repay the amount borrowed.

There are two types of deferred payment agreement –

The Council pays the care home directly for the person’s care fees, and delays receiving payment of the fees from the person;
The person pays the care home directly for the fees, using money loaned by the Council. The Council delays receiving repayment of the loan.

A deferred payment agreement will generally only cover the costs of care that the Council thinks is necessary. In some cases, the Council might also let the person defer top-up payments (payments made on top of ‘core’ care costs). You can read more about what top-ups are using this link.

The Council might let a person defer top-up payments as well as their necessary or core care costs if satisfied that the total costs being deferred are:

adjustable and sustainable for the person and
the person is able to give adequate security for all the costs to be deferred

Once the person has reached the equity limit of the property they are using security for the deferred payment agreement, the Council will not fund the top up. This means the person will need to find other ways to pay the top-up, or be prepared for a change in their care and accommodation. This might mean, for example, moving to a different care home.

You can read more about equity limits, affordability and sustainability using this lin k. You can read more about security using this link.

Why might a deferred payment agreement be useful?

Deferring the costs of care can:

Delay a person’s need to sell their home to fund the costs of their care;
Give peace of mind that a person’s home doesn’t have to be sold to fund the costs of their care whilst a decision is made about what is better for the person, in the long term. For example, if a person goes into a care home in a crisis, they may need some time to decide whether to stay there or not, after the crisis passes. Using a deferred payment agreement might give them the flexibility to decide, without feeling under pressure to sell up to fund their care costs.

A person using a deferred payment agreement will still be able to keep a minimum amount of their income, if they want to. This amount is called the ‘disposable income allowance’ (up to £144 per week). People can choose to keep less than this amount. Keeping less will mean the person contributes more to the cost of their care, and so the debt to the Council will be smaller (because they will be borrowing less).

Who can have a deferred payment agreement?

A person can generally have a deferred payment agreement if they meet the following criteria:

They are accessed as needing to be cared for in a care home (or would be accessed as needing this, if the Council was asked to assess), and
They are paying for some or all of the costs of their care in a care home, and
They have less than (or equal to) £23,250 in assets (assets means things like savings), not counting the value of their only or main home, and
Their home is not disregarded (not taken into account) as part of a financial assessment. A home might be disregarded for example, if someone else lives in it (such as the person’s husband or wife, the person’s dependent child, a relative aged over 60, or someone who is sick or disabled); and
They are
- ordinarily resident in North East Lincolnshire, or
- of no settled residence, but present in North East Lincolnshire, or
- ordinarily resident in another local authority area but North East Lincolnshire Council has decided that it will meet the person’s care needs (or would meet them if asked to).

The Council can refuse to offer a deferred payment agreement even if the person meets the criteria, where:

The person can’t give security for the debt, in the form of a first legal mortgage charge on their property, registered with the Land Registry. You can read more about security for the debt using this link
Where the person wants to pay a top-up in addition to their core care costs. You can read more about using top-ups using this link
Where the person does not agree to the Council’s terms and conditions as part of the deferred payment agreement. An example of a term of the agreement is to keep the person’s property insured and in good repair.

The Council will think about all of the person’s circumstances before it makes a decision about whether to offer a deferred payment agreement. The Council is responsible for public money, and it has a duty to make sure that any deferred payment agreement it offers is safe and sustainable.

What happens if a person doesn’t fit the criteria for having a deferred payment agreement?

Councils can decide to offer deferred payment agreements to people who do not meet the criteria. When deciding whether to offer a person a deferred payment agreement, the Council can think about things like (for example):

whether the person has any other way to meet the cost of their care (for example a financial product designed to pay for long-term care costs)
whether meeting their care costs would leave the person with very few assets to access (for example, their assets can’t quickly or easily be converted to cash)
how far away from meeting the criteria the person is, and how likely they might be to meet it in future. For example, the person may be only just outside of the criteria because they have slightly more in assets (excluding the value of their home) than the £23,250 threshold. Paying for their care could mean that the person drops below this threshold in the near future, and would then meet the criteria.

These are just examples.

Can a deferred payment agreement be used for supported living?

The Council can choose to offer a deferred payment agreement to people whose care is given in supported living if:

the person plans to keep their former home and pay the supported living care and accommodation rental costs from their deferred payment
the deferred payment agreement is not intended to finance mortgage payments on supported living accommodation

You can use this link to read more about supported living and other care options.

How much can be deferred?

Potentially, a person can defer all their necessary or ‘core’ care costs. The amount that is actually deferred will depend on:

The equity (value) the person has in the asset that they use as security. This is usually the equity in their home
The amount the person contributes to their care costs from other sources, including for example from their income (such as an occupational pension) or from another person (such as a family member)
The likely total costs of the person’s care.

The Council can’t allow more than the equity limit of the person’s property to be deferred. The equity limit will leave some value in the property, as a ‘buffer’ to cover any changes in the value of the property, and interest or administration fees that continue to accrue (add on to the amount owed).

Where a property is used as security for a deferred payment agreement, the Council must get a valuation of the property, to help work out the equity limit. People can decide to get an independent valuation too. If there is a substantial difference between valuations, the Council will try to agree the value with the person so that the deferred payment agreement can go ahead.

The equity limit is the value of the property minus –

10%
the amount secured against the property
£14,250 (£14,250 is the amount of the ‘lower capital limit’). People with assets lower than this amount are entitled to Council help with paying for their care costs. You can read more about the capital limits using this link.

For example, if a property was valued at £150,000, the equity value would be £120,750, worked out as follows:

£150,000 property value

Minus £ 15,000 10% of the value

Minus £ 14,250 the lower capital limit

£120,750 the remaining equity value.

The Council will contact the person when they have deferred around 70% of the value of their security, to review the costs of their care and decide what is best for the person’s costs in future. The Council will give written notice of the date the person is likely to reach the equity limit.

When thinking about how much to defer, the person and the Council will want to be sure that the arrangement can last for as long as the agreement is likely to be needed. This means thinking about:

How long the person might need the deferred payment agreement to last for
How long it might be until the person repays the amounts due under their deferred payment agreement
The equity value available in the asset being used for the deferred payment agreement. The asset is usually the person’s home
The affordability of any contributions the person is making from their savings (if they make any contributions). If the person’s savings are used up by contributing to care costs, this could increase the amount the person wants to defer
Whether the deferred payment agreement gives the person flexibility in meeting future care costs. Needs and care costs can change over time.

For example, if ‘Mrs A’ had £134,250 equity value in her home, she could afford her deferred care costs of £454 per week, for around five years. The average length of stay in a care home without nursing care is two years (https://www.bgs.org.uk/resources/end-of-life-care-in-frailty-care-homes), so Mrs A’s deferred payment agreement is likely to be sustainable.

The Council will provide an update on the amount deferred, administration costs and interest charged every six months.

What security can be used for a deferred payment agreement?

The Council’s preferred security is to take a first legal mortgage charge on a person’s home, registered with the Land Registry. A first legal mortgage charge means that when the property is sold, the sales proceeds are first used to pay off the deferred payment agreement.

All owners of the property would have to agree to the charge being registered with the Land Registry, sign a charge agreement and agree not to object to the sale of the property. Any person with a beneficial interest in the property would also need to consent to the charge.

The Council can decide to accept other types of security, where it is not possible to secure a first legal mortgage charge. Examples of other types of security could include using art, antiques or collectibles. It could also include using a third-party guarantor (such as a family member, who has security of their own, to act as a guarantee for the amount deferred), or an agreement to repay the amount deferred using the proceeds of a life assurance policy.

The Council will think about all of the person’s circumstances before it makes a decision about what to accept as security. The Council is responsible for public money, and it has a duty to make sure that any deferred payment agreement it offers is safe and sustainable.

The Council will revalue the security from time to time, to make sure the deferred payment agreement is still safe and sustainable. If the Council is concerned it will work with the person to review their situation and decide what is best for the person’s costs in future.

Where the security is a person’s home, can it be rented out?

Yes, if the Council agrees. Where a property is rented out, the person must:

have an Assured Shorthold Tenancy agreement with their tenant(s)
give the Council a copy of the Assured Shorthold Tenancy agreement
maintain the property to an appropriate standard, and keep it adequately insured
at the end of the deferred payment agreement, repay the debt accrued in the required time limits. This could mean that the tenant will need to move out
tell the DWP (Department for Work and Pensions) that they are renting out their property. Income from rent could affect any benefit entitlements.

Where the person uses rental income to pay for all or part of their care costs (to reduce the amount of debt that accrues), the Council expects them to keep the nationally set disposable income allowance (for example, to maintain the property). The disposable income allowance (currently £144.00) will not be taken into account as part of a financial assessment but it will impact on the level of debt that accrues (in other words, if the person keeps the £144.00, it cannot be used to pay for care costs, and so the debt to the Council will be larger).

Is there any interest due on the amounts deferred, or other administrative fees to pay?

Yes. The Council will recover the administration costs of setting up, maintaining and ending the deferred payment agreement, and charge interest. This is to cover what it costs the Council to lend to the person, and the risks to it of lending.

Administration charges and interest are added on to the total amount deferred as soon as they are incurred, unless the person asks to pay these separately.

Administration charges and interest continue to be added to the deferred payment agreement until it is completely paid off.

The Council will not charge more in administration fees than it costs it to provide the deferred payment agreement service. It will not make a profit. There may be fees to pay both at the start and end of the agreement, and during the course of the agreement.

Administrative costs include (but may not be limited to):

Registering a legal charge with the Land Registry against the title of the person’s property, including Land Registry search charges and any identity checks needed
Cost of Royal Institute of Chartered Surveyors (RICS) valuation and revaluation of the property
Costs of removing charges against the property
Ongoing costs such as legal fees, phone calls, postage, printing, and the costs of time spent providing the service/ management costs.

There is an extra administrative charge for those renting out their property.

Administrative costs are reviewed regularly (at least annually) and are therefore subject to change. The Council will provide an update on the amount deferred, administrative costs and interest charged every six months.

The Council charges interest at the maximum amount allowed by nationally set regulations. The rate changes nationally every 6 months. Interest is added to the amount deferred, and accrues on a compound basis. Compound interest means that interest is charged on the amount deferred and on the interest that has been added to that amount. That means interest is charged on the interest.

Even if the deferred payment agreement stops, for example because the person has reached the equity limit in their home, interest will still accrue (be added on to the amount owed to the Council) until the debt is paid off. When calculating progress towards the equity limit, the Council will take into account any interest and/ or fees to be deferred.

The Council will provide an update on the amount deferred, administrative costs and interest charged every six months.

How long can payments be deferred for?

Lots of people defer their repayments until they die. This means that after a person’s death, the asset that they have borrowed against (usually their home) is sold and the sales proceeds of it are used to pay off the amount of care costs deferred.

Other people use the deferred payment agreement as a ‘bridging loan’ – a short term way of paying for their care home while they decide whether to stay in a care home, go back to their own home, or move somewhere else. Once a decision has been made to stay in a care home, the person’s home can be sold, and the sales proceeds used to pay off the deferred payment agreement.

Once a deferred payment arrangement has started, can it be ended?

Yes. The agreement ends when the full amount due under the deferred payment agreement is repaid.

The Council might refuse to defer or loan any more charges for a person who has a deferred payment agreement if (for example):

the person no longer needs care in a care home
the person’s total assets fall below the lower capital limit (£14,250), and the person becomes eligible for Council help in paying for their care
the person has reached the equity limit of their property
the person doesn’t comply with the terms and conditions of the deferred payment agreement and the Council can’t resolve the problem with them
the person’s property starts being disregarded (not taken into account) as part of a financial assessment, and the person then qualifies for Council help in paying for care. For example, the property might start being disregarded if the person’s husband/ wife moves into the property after the agreement has been made. The person could then be eligible for Council help in paying for care and no longer need a deferred payment agreement.

These are just examples.

If the Council decides to stop the deferrals or loan payments, repayment of amounts already deferred or loaned will still be subject to the terms agreed for repayment. The Council cannot demand immediate repayment if the agreement stops.

The Council will try to give at least 30 days’ notice if it decides that deferrals or loans should stop. The Council will also help the person to think about how else their care costs could be met, without the deferred payment agreement.

A deferred payment agreement ends completely when the amount due under it is repaid to the Council (including administrative costs and interest).

What happens if the amounts due under a deferred agreement aren’t paid?

The person should tell the Council about any changes that might affect their deferred payment agreement (for example a change in their needs or income, or if someone has gained a beneficial interest in the property used as security). To let the Council know about any changes, contact the Finance Team at Focus Independent Adult Social Work by telephone (0300 330 2870) or by email (focus@nhs.net).

When the agreement comes to an end, all amounts due under it must be repaid to the Council in full (including administrative costs and interest). The money to repay the deferred payment agreement could come from the sales proceeds of the property used as security, or from someone else paying it off on their behalf, for example.

If all amounts are not repaid to the Council in required time limits, the Council might pursue the debt through the County Court and charge the higher County Court rate of interest while it waits to get its money back.

Can I ask for a deferred payment agreement for someone else?

If a person lacks mental capacity (is unable to make a decision about having a deferred payment agreement) another person may be able to make a decision to ask for one, in their best interests. You can read more about what it means to lack mental capacity using this link.

The Council will only be able to agree a deferred payment agreement in someone’s best interests, if the person asking for it has legal authority to act for them. This means that the person asking for the deferred payment agreement must be appointed as a property and finances attorney or deputy. You can read more about being an attorney using this link. You can read more about being a deputy using this link.

I would like to talk to someone about having a deferred payment agreement. Who should I contact?

We recommend you seek independent financial advice before considering a deferred payment agreement. You can get more information about independent financial advice at Money Helper.

The Finance Team at Focus Independent Adult Social Work can tell you more about having a deferred payment agreement. You can contact them by telephone (0300 330 2870) or by email (focus@nhs.net). The Finance Team at Focus acts on behalf of the Council.

For further information on deferred payment agreements, please see our deferred payment agreement policy.

Useful links

https://livewell.nelincs.gov.uk/adult-social-care/paying-for-your-care/

Deferred payment agreements for people who own their own home and are moving into a care home | MoneyHelper

https://www.gov.uk/government/publications/care-act-statutory-guidance/care-and-support-statutory-guidance#Chapter9

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Page last updated: 06 Oct 2023