Deferred Payment Agreement and Care Home Fees

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What is a Deferred Payment Agreement (DPA)?

A Deferred Payment Agreement (DPA) is an agreement between you and your local authority that you will agree to a charge being placed on your home in return for the local authority paying a portion of your care home fees whilst your home remains unsold.

When might a Deferred Payment Agreement be relevant to me?

Your local authority has a duty to assess your care and support needs. If it finds that those needs are not eligible for funding by the NHS it will carry out a second assessment, this time of your financial resources. Anyone with capital above £23,250 is required to fund their own care; anyone with less than £14,250 will have their costs met by the local authority. Anyone falling within the middle is required to contribute towards their costs. If you do not have sufficient income or other assets besides your main home to pay care home fees and for whatever reason you do not want to sell your home or cannot sell it, if you meet the local authority’s criteria, you may be offered a DPA.

How does a Deferred Payment Agreement work?

Under a DPA, you will pay the part of your care home fees you are assessed as able to pay, usually directly to the local authority. The local authority will pay the part that you can’t afford to pay without selling your home to the care home. These are the ‘deferred payments’.

Interest is charged on the deferred payment and administration fees are payable, both at the outset and on an annual basis. Both can be deferred and added to the deferred payment debt, but interest is charged on both.

The local authority places a legal charge on your home as security against the debt. Like a mortgage, it’s repaid when your home is sold or when you repay the deferred payment and you no longer need to defer the rest. Otherwise, it is repayable 90 days after your death.

Am I eligible for a Deferred Payment Agreement?

In some cases, the local authority must offer you a DPA, in others they have discretion as to whether it is offered or not.

In all cases, your care and support assessment should show your ongoing needs are best met in a care home setting, permanently. You should have savings of less than £23,250 not including your home or private pension and your home should not be disregarded in your financial assessment.  You should be on the title of your home, or it should be held in trust for you, and it must be insurable.

You must have either mental capacity to enter into the DPA or someone else with legal authority (under a Lasting Power of Attorney or Deputyship order) who is willing to do so on your behalf.  This is a prime example of how important it is to prepare Lasting Powers of Attorney in good time.

If your property is jointly owned or you already have a charge against it such as a mortgage, the local authority may still offer a DPA depending upon your circumstances and whether you have the consent of the other owner.

What are the costs?

In addition to care fees, interest will be payable, although the government sets a maximum rate based on the cost of government borrowing, and this is reviewed every six months. Interest is paid on the amount actually used and not a fixed sum.

Administration fees are also payable at the outset and annually. You will also need to pay for the registration of your home at the Land Registry if necessary, and for any legal or financial advice you take regarding the DPA.

What are some of the advantages of a Deferred Payment Agreement?

If you are unsure whether to sell your house, or are unable to do so easily, or want to wait for a period until house prices rise, you can use a DPA to help you cover costs. Although you are paying interest on those costs, it may be possible to offset it by increasing your income, such as by renting out your home. Although the payments are only delayed and not written off, a DPA gives you certainty as to how much those payments will be and when they are repayable.  It may also help you to cover the costs of a more expensive care home than you might otherwise be able to afford by effectively enabling you to ‘top-up’ your own costs.

What are some of the disadvantages of a Deferred Payment Agreement?

If property prices fall, you will have less money to pay fees, and you also have ongoing maintenance and insurance costs for your home. You should weigh up whether it would be more advantageous to sell up immediately and put the proceeds into investments which will give a good return.

Although there is a statutory limit to the maximum rate of interest charged, interest is usually charged on a compound basis, so that interest is charged on the interest you are rolling up as well as the care home costs.

Here to Help

If you need advice about Deferred Payment Agreements, get in touch with Victoria Wood in our Private Client team, who specialises in advising older and vulnerable clients.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.

NLA article not to be reproduced.