Deferred Payment Agreement to pay for care home fees

People who own their own home and are moving into a care home long-term can use the value of their property to pay the fees through a Deferred Payment Agreement with their local authority.

A Deferred Payment Agreement allows you to keep your home for longer if you do not want to sell your home immediately or it proves difficult to do so.

This page explains what a Deferred Payment Agreement is, who is eligible for it, how it works and what the pros and cons are.

What is a Deferred Payment Agreement?

A Deferred Payment Agreement is a long-term loan from your local authority that you can use to pay for care home fees if you own your home. 

It enables you to use the value of your home to pay for care home fees as your local authority secures the loan against your property. The money does not have to be paid back until you choose to sell the home or after your death.

Under the legal agreement, your local authority will pay for your care home costs on your behalf. Since a Deferred Payment Agreement is a loan, it must be paid back, including interest and administration fees.

Local authorities in England, Scotland and Wales must offer you a Deferred Payment Agreement if you are eligible. Northern Ireland on the other hand has no formal deferred payment system but it may still be available for you. Contact your local Health and Social Care Trust for more information.

If you request information about Deferred Payment Agreements from your local authority, they must tell you how it works and what the advantages and disadvantages may be.

A Deferred Payment Agreement is only available for long-term care which means you cannot use it for temporary care home stays.

Who is eligible for Deferred Payment Agreements?

You can apply for a deferred payment agreement after you have had your needs assessed by your local council. As part of the Needs Assessment, your local authority will carry out a Financial Assessment, also known as a means test, to look at your savings, capital and assets.

To be eligible for a deferred payment agreement, you must have savings or capital of less than the upper means test threshold, excluding the value of your home. The amount depends on which country you live in.

• England: £23,250
• Scotland: £21,500
• Wales: £50,000
• Northern Ireland: £23,250

Additionally, you must own your home and its value is taken into account during the Financial Assessment. Your home will be included in the means test if no one else will be living there, such as a spouse or partner.

Case study

You live in England and your savings, capital and home are at a total value of £220,000 with your home being worth £200,000. There is no one else living in your home, such as a partner, spouse, child or a relative over the age of 60.

With your home excluded, you have £20,000 in savings and capital. This takes you below the threshold and qualifies you for a deferred payment agreement.

However, your local authority must ensure that they will get the money back. This means some authorities may lend you less to leave you, or the executor of your will, with enough money to cover the costs of selling the property. The authority must also make sure the loan is repaid if house prices fall.

The amount of money you defer must not go over your equity limit. Your equity is the market value of your home minus outstanding mortgage payment or other debts secured against your home.

Your local authority must ensure that you borrow no more than 90 per cent of your home’s value minus any other claims on the property.

When should you use a Deferred Payment Agreement?

If your partner, dependant child or a relative over the age of 60 will continue to live in your home after you have moved out, your home will be disregarded from your assets. This means you do not need to use the value of the home to pay for care and do not need a Deferred Payment Agreement.

However, if you are low on savings and capital but the value of your home takes you over the means test threshold, you may want to consider a Deferred Payment Agreement for care home fees. This means that you can keep your home for as long as you are alive to pay for your care.

The scheme comes with its advantages and disadvantages and you need to weight the pros and cons against each other and think about your circumstances.

Advantages of using a Deferred Payment Agreement for care home fees

• You can delay selling your home until you are ready
• Your home may increase in value during the time you are in care, meaning you will have more money to pay the loan back
• You only build up debt against the value of your home for as long as you are in the care home
• You may be able to rent out your home to pay for care fees
• You may be able to include top-up fees in your agreement to move into a more expensive room or care home 

Disadvantages of using a Deferred Payment Agreement to pay for your care

• You will still have to pay for maintenance of your home even if you do not live there
• You still need home insurance, which can be difficult to get if the property is unoccupied
• You will still have to pay for the mortgage if you still have one
• If the value of your home falls, you are left with less money to pay the loan back

Deferred Payment Agreement interest rates and administration fees

Another factor to consider is that local authorities are entitled to charge interest on a Deferred Payment Agreement. However, the maximum amount they are allowed to charge is set by the government.

• In England and Wales, the interest rate is based on the gilt market rates plus 0.15 per cent and is revised every six months in January and July. From 1 January 2024 to 30 June 2024, the maximum interest rate is set at 4.65 per cent.
• In Scotland, there are no interest charges during your Deferred Payment Agreement. Interest is only charged at ‘a reasonable rate’ when the individual terminates the agreement or from 56 days after their death.
• In Northern Ireland, there is no formal system for deferred payment agreements but may be available to individuals on a case-by-case basis. Contact your local Health and Social Care Trust for more information.

Your local authority may also charge administration fees, including legal fees, valuation costs and running costs. A list of administration charges should be available to you.

How to apply for a Deferred Payment Agreement

You can request a needs assessment if you plan to move into a care home. Alternatively, you may already live in a care home and you were unaware of the scheme, or you have up until this point self-funded your care and your savings have dropped below the means test threshold, making you eligible for financial support from the council.

If your local authority has assessed you as needing to move into residential care, you can contact them to request a Deferred Payment Agreement. To determine if you qualify for the scheme, they will also carry out a Financial Assessment of your income, savings and assets.

The value of your home is disregarded for the first 12 weeks of moving into a care home. If you meet the eligibility requirements for the scheme, the agreement should be set up by the time you must start to contribute to the fees.

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Even if you have a Deferred Payment Agreement in place, you will usually be expected to pay towards your care from your income, such as your pension. However, your local authority must leave you with a certain amount of money that you can use towards maintenance costs, utility bills and home insurance.

Your local authority may offer you a Deferred Payment Agreement even if you do not meet all the requirements if they think you will benefit from the scheme. A case like this could be if your savings are close to the means test threshold.

If you still have a mortgage on your home, you should contact your lender to make sure they allow a second loan to be secured on the home.

Other ways to pay for care home fees

Finding the best way to fund your care according to your unique situation can be difficult. Because of this, it may be beneficial to get financial advice before making a decision.

To explore other ways of funding your care, see our Care Home Fees Advice article.