What is a deferred payment agreement?
If you don’t have enough money to pay your care home fees and are finding it difficult to sell your home, or don’t wish to sell your home, you can request a ‘deferred payment agreement’.
This is an arrangement with Hampshire County Council that lets you use the value of your home to help you pay your care home costs. The scheme is a type of loan that lets you 'defer' paying the full cost until a later date.
If you are eligible for the scheme, we will work out how much you can afford to pay. You will still pay the weekly contribution towards your care that you have been assessed as being able to pay from your income and other savings, but we will pay the part of your weekly costs that you can’t afford. The part that we pay on your behalf is the 'deferred payment'. This builds up as a debt which is repaid when your house is sold. If you decide not to sell your property during your lifetime, the debt must be repaid from your estate after your death.
Once you enter into the agreement, we register a legal charge on your property. This means that you will be unable to sell or transfer ownership of the property without repaying the debt. You can end the agreement at any time (for example, if you decide to sell the property) by repaying the debt.
A deferred payment scheme will become effective after you’ve been in a care home for 12 weeks or more. We disregard the value of your home for the first 12 weeks that you are resident in a care home. Short-term stays in care homes aren’t covered by the scheme.
Am I eligible for a deferred payment agreement?
We will be able to offer you a deferred payment agreement if all of the following apply:
- You’re receiving long-term care in a care home or soon will be
- You’re financially assessed as having less than £23,250 in savings, other than the value of your property
- You’re a homeowner and there isn’t anyone else living in the property, such as a spouse, partner, child or a relative aged 60 years or over
- We are able to place a first legal charge in the Land Register on the property which is, or was, your main/only home to secure the debt. To do this, your property must be registered at the Land Registry and there must not already be an existing charge on the property, and
- If there are other people who own the property with you, they agree that the Council’s interest will rank above their interest in the property and sign the relevant documents to confirm this
- You, and any co-owners, agree to the Terms and Conditions of the Agreement by signing both the Agreement and the Land Charge document
- You have mental capacity to enter into a deferred payment agreement or have an Attorney or Deputy who is able to enter into the agreement on your behalf
What are the possible advantages of a deferred payment agreement?
- We will pay for the costs of your care so you don’t have to find the money straight away
- A deferred payment could be used as a ‘bridging loan’ to give you time and flexibility to sell your home when you choose to do so
- You only build up a debt against the value of your home for the amount of time that you’re in care. If you know that you may only need to spend a short time in care (for example because your condition is terminal) this might be an option worth considering
- Your debt is cleared when the money tied up in your home is released. This is usually by selling your home. However, you can also pay the debt back from another source if you want to; for example, the repayment could be made by a third party or it could be paid back from another asset in the estate such as a life insurance policy
- If we agree there is enough equity in your home, you could add the cost of any top-up payments above the local authority rate, to the deferred payment agreement loan amount. This would give you a greater choice of accommodation
- The value of your home might continue to increase in value, effectively paying towards your care costs
- It might be possible to let your property and use the rent towards your fees. (If you do, we will take into account 75% of the gross rent being charged for the property in calculating your contribution towards your care)
- You can carry on claiming Attendance Allowance, Disability Living Allowance (care component), or Personal Independence Payment (daily living component), if you’re entitled to any of these benefits. (If you self-fund your care and are not receiving any of these benefits you should check with the DWP to see you are entitled to claim any)
- You can terminate the agreement at any time but you will need to repay the full amount due, including administration costs and interest, straight away
What are the possible disadvantages of a deferred payment agreement?
- You will still have to pay for the upkeep and maintenance of your home
- You might have to continue paying for heating and lighting bills so that the house does not look unoccupied
- You will have to keep your home insured and this might be a problem if no-one is living there
- House prices could fall leaving you with less money to pay back the fees
- Letting property can be difficult to administer
- You will lose out on interest you could have earned if you had sold your home and put the capital into savings or investments
- If you have a deferred payment agreement and decide not to sell your property, you may not be entitled to claim Income Support or Pension Credit
Can I have a deferred payment on a second property?
No. Government rules do not allow this. A deferred payment can only be agreed on your main or only home.
When would the Council refuse a deferred payment application?
We may refuse to enter into an agreement if, for example:
- we are unable to secure a first legal charge on your property (for example, if you have a mortgage or equity release agreement)
- you have asked to include a weekly ‘top up’ payment and there is insufficient equity in your property to sustain this
- you lack the mental capacity to enter into an agreement and there is no legally appointed person to do this for you
- you do not accept the terms and conditions of the agreement
If this happens we will write to explain the reason why your application has been refused and advise you of your right to complain under the Adults’ Health and Care Complaints Procedure.
We cannot advise you on whether to proceed with a deferred payment agreement or how to fund your care if a deferred payment has been refused. We recommend that you seek independent financial advice.
How much will I be offered in a deferred payment agreement?
The maximum we can defer against the value of your home (the ‘equity limit’) is 90% of its current market value, less £14,250.
We will take into account the cost of care at the care home you have chosen.
We need to ensure that you will be able to repay your debt. We may set a limit on the amount we allow you to ‘top up’ over the amount we would usually pay for a care home.
When the amount you have deferred reaches 50% of the equity limit, we will re-value your property to check the amount of equity remaining.
How much income do I keep?
Under Government rules you are allowed to keep a minimum amount of income each week if you enter into a deferred payment agreement.
This is called the Disposable Income Allowance (DIA) and is set at £144 a week.
The allowance gives you enough money to pay for any additional costs you might have to continue paying for your home. You can choose to contribute more towards the costs of your care and keep less than £144 a week if you wish which would mean less is deferred and incurring interest.
How much do I pay back?
The amount you will pay back is made up of:
- the amount the Council has paid towards your care costs, plus
- any administration charges that you have chosen to include in the deferred amount, plus
- interest on the deferred amount
We charge an administration fee to cover our costs in relation to the deferred payment agreement. We charge an average cost for staff time, copying and postage. We charge actual costs for things such as property valuation and Land Registry charges.
Currently, for routine matters, this is set at a maximum charge in the first year of £1190 (including the £300 valuation fee). The annual cost will be £312 for most years thereafter (although it will be £612 if we need to carry out a further standard property valuation). We may adjust this to take into account any specific requirements in relation to the property being valued. The costs will be reviewed annually.
You can choose to pay the initial charges up front or to include these in the deferred amount together with your care costs.
- If you choose to include the charges in the deferred amount, we will apply interest to the total amount
- If you choose to include the initial charges in your deferred amount, we will still charge for these even if you decide not to go ahead with the agreement
The amount will reflect the work we have already carried out to put the agreement in place.
Standard property valuation costs
We include a standard property valuation cost of £300 in your administration charges. If you have a recent (within 3 months) written professional market valuation of your property, we will accept this. This means you will not have to pay for a Council valuation.
Sometimes a more complex valuation is required; for example, if the value of the property is in dispute. If an independent valuation is necessary, we will charge you for the cost of this. It will be considerably more than the usual charge of £300.
What interest will I pay?
We charge interest on the deferred amount for the whole period that the agreement is in place. The interest will form part of the amount you owe. We charge the maximum interest rate as set nationally. The rate of interest is updated twice yearly in Government Office of Budgetary responsibility reports. We apply the updated rates to your debt from the following 1 January and 1 July as appropriate. The rate of interest may therefore change between starting discussions with us and the time when you sign the agreement.
We will calculate your interest on the deferred amount including any administration charges you have asked to be deferred. The interest will be compounded on a daily basis.
How do I keep track of what I owe?
- You will have a copy of the original agreement you signed
- Twice a year we will send you a full written statement which will include:
- the amount of care costs deferred, interest rates and periods applied for and administrative charges applied
- the total amount due
- You can request a written statement on the current situation of your deferred payment agreement at any time and we will send it within 28 days
When will the Council stop deferring any more care costs?
We will not continue to defer any further costs and charges under the agreement in any of the following circumstances:
- If your total assets – including the value of your property – fall below the level of £23,250 and you therefore become eligible for support from us to pay for your care
- If you no longer have a need for care in a care home
- If you breach certain predefined terms of your contract and it is not possible to resolve the issue
- If the property becomes disregarded under charging regulations, including:
- where a spouse or dependent relative has moved into the property after the agreement has been made and this means you become eligible for our support in paying for care and therefore no longer require a deferred payment agreement, and
- where a relative who was living in the property at the time of the agreement subsequently becomes a dependent relative (as defined in charging regulations)
- If you reach the ‘equity limit’ that you are allowed to defer. This also applies when the value of the security has dropped and so the ‘equity limit’ has been reached earlier than expected
If we refuse to defer any more charges for you, your social care practitioner will discuss the situation with you and how your care costs will be met in the future. The agreement remains in place in respect of the costs deferred prior to this refusal. We will continue to add interest to the deferred amount.
Should I get independent financial advice?
If you are paying the full cost of care yourself, you should always seek independent financial advice. Look for a financial adviser with specialist qualifications to advise on the funding of long-term care. They will be able to explain all the costs and risks involved and should be able to help with other things such as setting up a Lasting Power of Attorney.
The Money Advice Service gives advice about all aspects of paying for care. Phone 0300 500 5000.
The Society of Later Life Advisers (SOLLA) is a not-for-profit consumer organisation that aims to assist consumers and their families in finding accredited independent financial advisers who understand financial needs in later life. Phone 0333 2020 454.
What if I need help in making decisions?
You can only apply for a deferred payment agreement if you have mental capacity to enter into the agreement yourself or you have a legally-appointed representative. This is someone with a registered Enduring Power of Attorney or who holds a Lasting Power of Attorney or who the Court of Protection has appointed to be your Deputy.
We understand that situations can change very quickly. It isn’t always possible to have a legally-appointed representative in place before the need for a deferred payment agreement arises. In these cases, speak to your care practitioner who can advise what arrangements we can put in place.
How do I apply for a deferred payment?
You will need to tell us that you want to apply for a deferred payment. You need to let us know before the end of the 12-week property disregard period and at the earliest opportunity.
If we offer you the scheme you will have to sign a deferred payment agreement. This document explains how the agreement works and the responsibilities of both you and the Council.
Checklist – key things you will need to have in place/organise
- Make sure your property is registered with the Land Registry
- Arrange independent legal and financial advice
- Decide whether you want to pay an administration fee up front or add it to the deferred amount on which interest will be charged
- Ensure that all owners of the property are prepared to sign all relevant documentation
- Provide evidence of any other mortgage
- If you are making the application as a Deputy, the Council needs to see the deputyship order
- If you are making the application as an attorney the Council will need to see the document appointing you as Attorney