Deferred payment agreements

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.

About deferred payment agreements

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 ([email protected]). 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.

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.

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.

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

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.

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.

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).

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.

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 ….

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… You can read more about being a deputy using …

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.

If someone chooses to use their property to help pay for care through a Deferred Payment Agreement, the Council can only allow costs to be deferred up to a certain amount. This is called the equity limit.

What is the equity limit?

The equity limit is the maximum amount that can be deferred using the value of a property. It’s calculated to leave a buffer—this helps cover:

Any changes in the property’s value
Interest charges
Administration fees

How is the equity limit worked out?

The Council will arrange a valuation of the property. You can also get your own independent valuation. If the two values are very different, the Council will work with you to agree on a fair value.

The equity limit is calculated as:

Property value
– 10% buffer
– any existing loans or mortgages secured on the property
– £14,250 (the lower capital limit)

Example:
If your property is worth £150,000:
– 10% buffer = £15,000
– Lower capital limit = £14,250

Equity limit = £150,000 – £15,000 – £14,250 = £120,750

This means you could defer up to £120,750 of care costs.

What happens as you approach the limit?

When you’ve deferred around 70% of your equity limit, the Council will:

Review your care costs with you
Help plan for the future
Give you written notice of when you’re likely to reach the limit

This gives you time to consider other options for paying for care.

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 (End of Life Care in Frailty: Care homes | British Geriatrics Society), so Mrs A’s deferred payment agreement is likely to be sustainable.

Eligibility

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

They are assessed as needing to be cared for in a care home
They are paying for some or all of the costs of their care in a care home
They have less than (or equal to) £23,250 in assets, not counting the value of their only or main home
Their home is not taken into account as part of a financial assessment – this might be the case if someone else lives in it (husband or wife, child, a relative aged over 60, someone who is sick or disabled)
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).

In some cases, the Council can decide to offer a deferred payment agreement to people who don’t meet the criteria. Examples could include: if 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); or how far away from meeting the criteria the person is, and how likely they might be to meet it in future.

Security for a deferred payment

A person’s home

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.

Renting a property

With the Council’s agreement, a property may be rented out. However, the person must:

Have a valid tenancy agreement
They must have an Assured Shorthold Tenancy (AST) agreement in place with their tenant(s).
Share the agreement with the Council
A copy of the AST must be given to the Council.
Keep the property in good condition
The home must be well-maintained and properly insured.
Repay the deferred care costs
When the Deferred Payment Agreement ends, the full amount owed must be repaid within the required time.This may mean the tenant has to move out so the property can be sold.
Inform the Department for Work and Pensions (DWP)
They must tell the DWP that they’re renting out the property, as rental income could affect benefit entitlements.

If the person uses rental income to reduce the amount of debt building up:

They are allowed to keep a disposable income allowance (currently £144.00 per week) to help cover property-related costs like maintenance.
This allowance won’t be counted in the financial assessment.
However, keeping the £144.00 means that amount can’t go toward care costs, so the overall debt to the Council will be higher.

Other types of security

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 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.

Extra fees

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.

Missed payments and changes to circumstances

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 ([email protected]).

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.

Deferring top-up payments

Before agreeing to defer care costs, the Council must be satisfied that:

The costs are manageable and affordable for the person in the long term, and
The person can provide suitable security (such as property) to cover the deferred amount.

Once the person reaches the equity limit of the property being used as security, the Council will no longer be able to fund any additional top-up payments. At that point, the person will need to either:

Find another way to pay the top-up, or
Be prepared for a change in their care arrangements, which could include moving to a different care home.

Refusing an agreement

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.

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.
Where the person wants to pay a top-up in addition to their core care costs.
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.