Deferred Payment Agreements

1. What are Deferred Payment Agreements?

The establishment of the universal deferred payment scheme will mean that people should not be forced to sell their home in their lifetime to pay for their care. By entering into a deferred payment agreement (DPA),  a local authority agrees to:

• defer the payment of charges due to it from the adult, for the costs of meeting needs in a care home or supported living accommodation; or
• defer the repayment of a loan to the adult in instalments, to cover the costs of care and support in a care home or supported living accommodation.

The Care Act 2014 sets out where the amount of the DPA, or part of the sum, owed to the local authority does not need to be repaid until a specified time.

The Regulations specify when a local authority may or must offer a person a deferred payment or a loan.

Deferring payment can help people to delay the need to sell their home, and provides peace of mind during a time that can be challenging (or even a crisis point) for them and their loved ones as they make the transition into care.

“Deferred payment is fundamentally about having a mechanism that avoids the family facing the trauma of a fire sale of the property at the moment of crisis. Having a deferred payment gives that piece of mind of knowing that is not something they have to address at that point. It also ensures that the property is not sold at a point when everything else is going on, potentially at a lower price than it would achieve if properly marketed over time. It is an important protection of the asset, but much more important protection of the emotional crisis that a family is in at the point at which this takes place. That is the best way to understand what a deferred payment should be about.” (Paul Burstow, Hansard 2014)

A deferred payment agreement can provide additional flexibility for when and how someone pays for their care and support. It should be stressed from the outset that the payment for care and support is deferred and not ‘written off’ – the costs of provision of care and support will have to be repaid by the individual (or a third party on their behalf) at a later date.

The scheme is universally available throughout England, and local authorities are required to offer deferred payment agreements to people who meet certain criteria governing eligibility for the scheme (see Section 2, Qualifying Criteria for Deferred Payment Agreements). Local authorities need to ensure that adequate security is in place for the amount being deferred, so that they can be confident that the amount deferred will be repaid in the future. Local authorities are also encouraged to offer the scheme more widely to anyone they feel would benefit who does not fully meet the criteria. The amended Regulations give the local authority greater flexibility to do this.

A deferral can last until death, however many people choose to use a deferred payment agreement as a ‘bridging loan’ to give them time and flexibility to sell their home when they choose to do so. This is entirely up to the individual to decide. Further details on deferred payment agreements are set out in the sections below.

2. Qualifying Criteria for Deferred Payment Agreements

Deferred payment agreements are designed to prevent people from being forced to sell their home in their lifetime to meet the cost of their care. Local authorities must offer them to people who meet the criteria below and who are able to provide adequate security (see Section 13, Obtaining Security). Subject to these criteria they must offer them to people who have their needs met by the local authority, and also people who meet their own needs. The regulations provide that someone must be offered a deferred payment agreement if they meet all of the following criteria at the point of applying for a deferred payment agreement. Broadly, they are that the:

1. person is ordinarily resident in the local authority area or present in the area but of no settled residence; or ordinarily resident in another local authority area but the local authority has determined that they will or would meet the individual’s care needs under section 19 of the Care Act if asked to do so [see note 1];
2. person has needs which are to be met by the provision of care in a care home. This is determined when someone is assessed as having care and support needs [see note 2] which the local authority decides should be met through a care home placement;
3. person has less than (or equal to) £23,250 in assets excluding the value of their main or only home (that is in savings and other non-housing assets and housing assets other than their main or only home);
4. person’s home is not disregarded [see note 3], for example it is not occupied by a spouse or dependent relative as defined in regulations on charging for care and support (that is someone whose home is taken into account in the local authority financial assessment and so might need to be sold).
5. the person agrees to the agreement.

Note 1: Where a local authority is meeting an individual’s care and support needs under section 19(2) of the Care Act.

Note 2: When someone is arranging their own care and support and the authority has not performed an assessment, this condition is satisfied when someone would be assessed as having eligible needs were the authority to have carried out such an assessment.

Note 3: Disregarded for the purposes of the financial assessment carried out under section 17 of the Act.

As well as providing protection for people facing the prospect of having to sell their home to pay for care, deferred payment agreements can offer valuable flexibility, giving people greater choice over how they pay their care costs. Local authorities are, at their discretion, permitted to be more generous than these criteria and offer deferred payment agreements to people who do not meet the above criteria.

In deciding whether someone who does not meet all of the criteria above should still be offered a deferred payment, some considerations a local authority may wish to take into account include (but are not limited to):

• whether meeting care costs would leave someone with very few accessible assets (this might include assets which cannot quickly / easily be liquidated or converted to cash);
• if someone would like to use wealth tied up in their home to fund more than just their core care costs and purchase affordable top ups (see Section 8, How much can be Deferred?);
• whether someone has any other accessible means to help them meet the cost of their care and support; and/or
• if a person is narrowly not entitled to a deferred payment agreement given the criteria above, for example because they have slightly more than the £23,250 asset threshold. This should include people who are likely to meet the criteria in the near future.

Local authorities may also at their discretion enter into deferred payment agreements with people whose care and support is provided in supported living accommodation.

The local authority should not exercise this discretion unless the person intends to retain their former home and pay the associated care and accommodation rental costs from their deferred payment. Further details on precisely what qualifies as supported living accommodation are set out in the regulations.

Deferred payment agreements cannot be entered into in order to finance mortgage payments on supported living accommodation.

In short, a local authority may enter into a deferred payment if:

• the adult’s needs for care and support are being met by providing accommodation in a care home or in supported living accommodation, or if the local authority had been asked to meet that person’s needs it would have provided for either of those types of accommodation;
• the local authority has obtained adequate security for the payment of the deferred amount;
• the adult agrees to the agreement.

3. Types of Deferred Payment Agreements

Deferred payment agreements can take two forms:

• the local authority pays the care home or supported living accommodation directly and defers the charges due to it from the individual (traditional type);
• the individual pays the care provider for their care and the local authority loans them the cost of care in instalments less any contributions the individual contributes from other sources (loan type).

When considering their approach as to when or whether to offer loan or traditional type deferred payment agreements, local authorities should have regard to their duties under the Care Act, including their duties under the wellbeing principle and their market duties. Local authorities cannot refuse to enter into a loan type deferred payment agreement if the qualifying criteria are met and the individual requests it, as set out in the DPA Regulations 2014 (subject to Section 4, Permission to Refuse a Deferred Payment Agreement below).

The local authority must comply with all relevant legislation and act under the guidance.

In all cases, a local authority is only required to enter into a deferred payment agreement to cover the costs of care and support which it considers necessary.

4. Permission to Refuse a Deferred Payment Agreement

A local authority must offer a deferred payment to someone meeting the criteria governing eligibility for deferred payment agreements (DPAs) and who is able to provide adequate security for the debt (obtaining a land registry charge on their property, see Section 13, Obtaining Security), and may offer a deferred payment agreement to others who do not meet the criteria, at their discretion.

However there are certain circumstances in which a local authority may refuse a request for a deferred payment agreement (‘permission to refuse’), even if a person meets the eligibility criteria and the local authority would otherwise be required to offer the person an agreement. This permission (or discretion) to refuse is intended to provide local authorities with a reasonable safeguard against default or non-repayment of debt.

A local authority may refuse a deferred payment agreement despite someone meeting the eligibility criteria where:

1. a local authority is unable to secure a first charge on the person’s property;
2. where someone is seeking a top up [see note 4];
3. where a person does not agree to the terms and conditions of the agreement, for example a requirement to insure and maintain the property.

Note 4: In these situations, a local authority should still seek to offer a deferred payment agreement but should be guided by principles in the section below (see Section 8, How much can be deferred?) to determine a maximum amount that is sustainable (or reflects their core care costs without any top-ups) and agree a deferral. The person can then choose whether they wish to agree.

In any of the above circumstances, a local authority should consider whether to exercise its discretion to offer a deferred payment anyway (for example, if a person’s property is uninsurable but has a high land value, the local authority may choose to accept charges against this land as security instead).

The main reason in practice for a local authority refusing to defer care home charges is when the amount of the care charges deferred has already reached the equity limit. In such circumstances, the local authority will stop deferring further care home charges. Interest and administration charges may continue to accumulate (see Section 14, Interest Rate and Administration Charge).

5. Circumstances in which Local Authorities may stop Deferring Care Costs

There are also circumstances where a local authority may refuse to defer any more charges for a person who has an active deferred payment agreement. Local authorities cannot demand repayment in these circumstances, and repayment is still subject to the usual terms of termination, see Section 16, Termination of the Agreement.

The local authority should provide a minimum of 30 days’ advance notice that further deferrals will cease; and should provide the person with an indication of how their care costs will need to be met in future. Depending on their circumstances, the person may either receive local authority support in meeting the costs of their care, or may be required to meet their costs from their own income and assets. Local authorities exercising these powers to cease deferring additional amounts should consider their decision to do so whilst considering the person’s circumstances and their overarching duties under the wellbeing principle (see Promoting Wellbeing chapter).

Circumstances in which a local authority may refuse to defer any more charges include:

1. when a person’s total assets fall below the level of the means test (see Charging and Financial Assessment chapter) and the person becomes eligible for local authority support in paying for their care;
2. where a person no longer has need for care in a care home (or where appropriate supported living accommodation);
3. if a person breaches certain predefined terms of their contract (which must be clearly set out in the contract) and the local authority’s attempts to resolve the breach are unsuccessful and the contract has specified that the authority will stop making further payments in such a case; or
4. if, under the charging regulations (see Charging and Financial Assessment chapter), the property becomes disregarded for any reason and the person consequently qualifies for local authority support in paying for their care, including but not limited to:
   • where a spouse or dependent relative (as defined in charging regulations) has moved into the property after the agreement has been made, where this means the person is eligible for local authority support in paying for care and no longer requires a deferred payment agreement;
   • where a relative who was living in the property at the time of the agreement subsequently becomes a dependent relative. The local authority may cease further deferrals at this point.

Local authorities should not exercise these discretionary powers if a person would, as a result, be unable to pay any tariff income due to the local authority from their non-housing assets.

Local authorities must also cease deferring further amounts when a person has reached the ‘equity limit’ that they are allowed to defer (see Section 6, How much can be Deferred?), or when a person is no longer receiving care and support in either a care home setting or in supported living accommodation. This also applies when the value of the security has dropped and so the equity limit has been reached earlier than expected.

See Case Study: Deferred Payments Arrangements.

6. Information and Advice

See also Information and Advice chapter.

Under the Care Act 2014, local authorities have responsibilities to provide information and advice about peoples’ care and support, including  deferred payment schemes.

In order to be able to make well-informed choices, it is essential that people access appropriate information and advice before taking out a deferred payment agreement (DPA). It is also important that people are kept informed about their DPA throughout the course of the agreement. See also Financial Information and Advice chapter; Section 14, The Local Authority’ Responsibilities whilst the Agreement is in place and Section 16, Termination of the Agreement).

Deferred payment agreements are often made during a time that is demanding for a person and their loved ones – a period when they are moving into a care home. People may need additional support during this period, and the local authority has a role in providing this support, particularly if a move into care is made rapidly and / or at an unexpected point. The local authority must provide information in a way which is clear and easy to understand, and it should be designed to ease the move into a care home for people, their carers and their families.

Carers and families often help people to make decisions about their care and how they pay for it. Local authorities should as appropriate invite carers and/or families to participate in discussions, and should also provide them with all the information that would otherwise be given to the person they care for, subject (where required) to the consent of the person with care and support needs (if they have capacity) or someone else with appropriate authorisation. In doing this, they must ensure compliance within the principles of the Mental Capacity Act 2015 and data protection legislation, and duties pertaining to information and advice (see Information and Advice and also Section 5, Capacity Issues).

If a local authority identifies someone who may benefit from or be eligible for a DPA or a person approaches them for information, the local authority must tell them about the DPA scheme and how it works. This explanation should, at a minimum:

• set out clearly that the fees are being deferred or delayed and must still be paid back at a later date, for example through the sale of the home (potentially after the individual’s death);
• explain the types of security that a local authority is prepared to accept (as set out by each local authority in a publicly – available policy; see Section 11, Obtaining Security);
• explain that if a home is used as security, the home may need to be sold at a later date to repay the amount due;
• explain that the total amount they can defer will be governed by an equity limit (discussed in Section 6, How much can be Deferred?) which may change if the value of their security changes;
• explain the circumstances where the local authority may cease to defer further amounts (such as when the person qualifies for local authority support in paying for their care), and the circumstances where the local authority has to stop deferring further amounts (such as when the person reaches their equity limit);
• explain how interest will be charged on any amount deferred;
• explain that they may be liable to pay administrative charges;
• explain what happens on termination of the agreement, how the loan becomes due and their options for repayment;
• explain what happens if they do not repay the amount due;
• set out the qualifying criteria for a DPA;
• detail the requirements that must be adhered to during the course of the DPA;
• explain the implications that a deferred payment agreement may have on their income, their benefit entitlements, and charging;
• provide an overview of some potential advantages and disadvantages of taking out a DPA, and explain that there are other options for paying for their care that they may wish to consider;
• note the existence of the 12 week disregard, which will afford those who qualify for it some additional time to consider their options in paying for care; and
• suggest that people may want to consider taking independent financial advice (including flagging the existence of regulated financial advice), in line with the Care and Support Statutory Guidance (see Charging and Financial Assessment chapter).

Local authorities should provide easy to read information about how the scheme works. This may be in the form of a standardised information sheet.

Local authorities must provide this information and advice in formats that ensure compliance with the requirements of the Equality Act 2010 (in particular, they must ensure where appropriate that the information is accessible to the sensory impaired, people with learning disabilities, and people for whom English is not their first language) (see Information and Advice).

Where relevant, local authorities should provide information and advice on DPAs at the earliest appropriate opportunity during the period of the 12 week disregard and  should aim to ensure that people are able to make a smooth transition from the 12 week disregard to the DPA if they opt to enter into an agreement. This means ensuring as far as possible that a DPA is available by the first day of week 13.

Local authorities should advise people (where appropriate) that they will need to consider how they plan to use, maintain and insure their property if they take out a DPA; that is whether they wish to rent, to prepare for sale, or to leave it vacant for a period. The local authority should also advise if it intends to place conditions on how the property is maintained whilst the DPA is in place (authorities will usually include requirements for people to maintain and insure their homes in the terms and conditions of a deferred payment agreement; see Section 15, Making the Agreement).

Basic information and advice should be available for homeowners on how they may choose to use their property when they enter care, for example information on how they may go about renting their property, and the potential impact on other people living in the property if a sale is required after their death.

People should be directed to more specialist organisations if needed, who can provide further advice on this issue, including information about their legal responsibilities as landlords and their obligations to any potential tenants.

See also Deferred Payment Case Studies

7. Mental Capacity

See also Mental Capacity.

As a deferred payment agreement can take some time to set up and agree, it is important that both the local authority and the individual consider any potential issues around mental capacity.

Where a person may lack capacity to request a deferred payment, a deputy or attorney (a person with a relevant enduring power of attorney or lasting power of attorney – LPA) may request a deferred payment on their behalf. If a family member requests a deferred payment and they do not have the legal power to act on behalf of the person, the person and the family member should receive information and advice on how to obtain this, through LPA and deputyships.

Where the local authority is the deputy for a person, the local authority deputy may apply for deferred payments where this is in the best interests of the person. Local authorities must not enter into deferred payment agreements with a person lacking mental capacity unless the proper arrangements are in place.

Local authorities and the person applying for a deferred payment (who has capacity) may also want to consider any potential issues around loss of capacity. Information and advice should be provided on options for deputyship, LPA and advocacy (see Independent Advocacy and Independent Mental Capacity Advocate Service). The local authority should confirm what would happen were the person to lose capacity and not have made their own arrangements. For further advice on capacity and financial arrangements see Annex D: Recovery of Debts a deferred payment being effectively a consensually accruing debt to the local authority.

In short, if a person lacks capacity to request a deferred payment, the Care and Support Statutory Guidance advises that a deputy appointed by the Court of  Protection or an attorney appointed by an enduring or lasting power of attorney may be requested  to enter into a deferred payment agreement on the adult’s behalf. Local authorities should in appropriate circumstances provide information about deputyship, legal powers of attorney and advocacy and confirm what would happen if an adult were to lose capacity and had not made his or her own arrangements.

8. How much can be Deferred?

In principle, a person should be able to defer the entirety of their care costs; subject to any contribution the local authority is allowed to require from the person’s income. The local authority will need to consider whether a person can provide adequate security for the deferred payment agreement (see Section 13, Obtaining Security; usually this requirement for ‘adequate security’ will be fulfilled by securing their deferred payment agreement against their property).

If the person is considering a top up, the local authority should also consider whether the amount or size of the deferral requested is sustainable given the equity available from their chosen form of security. A discussion of sustainability may be helpful in all cases to ensure the person is aware of how much care their chosen form of security would afford them.

Three factors will dictate how much a person will defer, each of which is discussed below:

1. The amount of equity a person has available in their chosen form of security (usually their property);
2. The amount a person is contributing to their care costs from other sources, including income and (where they choose to) any contribution from savings, a financial product or a third party;
3. The total care costs a person will face, including any top ups the person might be seeking.

The local authority should also be satisfied that any top up they agree to is sufficiently sustainable. Some guidance for local authorities in assessing whether a top up is sustainable is provided below.

9. Equity Limit

When considering the equity available, the local authority must be guided by an ‘equity limit’ for the total amount that can be deferred and ensure that the amount deferred does not rise above this limit. The equity limit will leave some equity remaining in the security used for the DPA. This will both act as a buffer to cover any subsequent interest which continues to accrue, and will provide a small ‘cushion’ in case of small variations in value of the security.

In the majority of cases a property will be used as security, so the equity limit will provide a cushion against changes in house prices. When calculating progress towards the equity limit, the local authority must also include any interest or fees to be deferred.

If the person intends to secure their deferred payment agreement with a property, the local authority must obtain a valuation of the property. Reasonable property valuation costs are included in the list of administration charges that the local authority can pass on to people, should it  wish to do so. People may request an independent assessment of the property’s value (in addition to the local authority’s valuation). If an independent assessment finds a substantially differing value to the local authority’s valuation, the local authority and person should discuss and agree an appropriate valuation prior to proceeding with the agreement.

Where a property is used as security to offer a deferred payment agreement, the equity limit must be set at the value of the property minus ten percent, minus £14,250 and the amount of encumbrance secured on it. This limit provides some protection to local authorities against changes in the value of the security (such as possible house price fluctuations) and the risk that they may not be able to recoup the full amount owed, but also should mean that people qualify for local authority support if they deplete the equity available in their property (and are consequently not at risk of having to sell their home to pay for care).

The local authority should, when someone is approaching or reaches the point at which they have deferred 70% of the value of their chosen security, review the cost of their care with the person, discuss when the person might be eligible for any means tested support, discuss the implications for any top up they might currently have, and consider jointly whether a deferred payment agreement continues to be the best way for someone to meet these costs.

In summary, the Care and Support Statutory Guidance sets out how the equity limit should be calculated. The local authority should obtain a valuation of the adult’s property from which it must deduct an allowance of ten percent of the value of the property with a further deduction of the lower capital limit (£14,250.00) and also the amount of any charge secured upon the property. The equity limit provides a protection for local authorities and the adult by making certain that there is a buffer or cushion to protect the parties against a change in circumstances, that is price fluctuations. So those persons who reach the equity limit are still able to receive local authority funded care without the need to sell the house.

Upon or shortly before the amount of the care costs paid by the local authority amounts to or exceeds seventy percent of the equity limit , the local authority should review the deferred payment agreement with the adult to establish whether the deferred payment agreement remains appropriate.

See Case Study: Deferred Payments Arrangements.

Local authorities must not allow additional amounts to be deferred beyond the equity limit, and must refuse to defer care costs beyond this (see Section 2, Permission to Refuse a Deferred Payment Agreement). However, interest can still accrue beyond this point, and administrative charges can still be deferred.

10. Contributing to Care Costs from other Sources

A person may meet the costs of their care and support from a combination of any of four primary sources:

1. income, including pension income;
2. savings or other assets they might have access to, this might include any contributions from a third party;
3. a financial product designed to pay for long-term care; or
4. a deferred payment agreement which enables them to pay for their care at a later date out of assets (usually their home).

The share of care costs that someone defers will depend on the amount they will be paying from the other sources listed above.

The local authority may require a contribution towards care costs from a person’s income, but the person has a right to retain a proportion of their income (the ‘disposable income allowance’). The disposable income allowance is a fixed amount (up to £144 per week) of a person’s income which the local authority must allow the person to retain (if the person wants to retain it). The local authority can require the person to contribute the rest of their income, but must allow the person to retain as much of their disposable income allowance as they want to.

A person may choose to keep less of their income than the disposable income allowance. This might be an advantage to the person as they would be contributing more to the costs of their care from their income, and consequently reducing the amount they are deferring (and accruing less debt to their local authority overall). However this must be entirely at the individual’s decision and the local authority must not compel someone to retain less than the disposable income allowance if the person wants to retain the full amount.

If a person decides to rent out their property during the course of their DPA, the local authority should permit that person to retain a percentage of any rental income they possess. The local authority may want to consider whether to offer other incentives to individuals to encourage rental of properties, though the decision as to whether or not to rent a property must be the person’s and theirs alone.

A person may also contribute to their care costs from payments by a third party (including any contributions available from a financial product) or from their savings. Contributing to care costs from another source would be beneficial for a person as it would reduce the amount they are deferring (and hence reduce their overall debt to the local authority). The local authority must not compel a person to contribute to their deferral from these sources.

In brief, the local authority may require an adult to pay a contribution from their ongoing income towards the cost of care home fees. The person must be allowed to keep a weekly sum known as the disposable income allowance (DIA) with a maximum amount of £144.00 per week. The person may decide not to keep all of the DIA or the person may make payments from other sources, for example savings. The result of such payments would mean the person’s care costs would be less and the amount ultimately repayable to the local authority under the deferred payment agreement would be reduced.

See Case Study: Deferred Payments Arrangements.

11. Care Costs

Before considering in detail how much they will be deferring, a person and usually the local authority should have a rough idea of their likely care costs as a result of the care planning process. Someone may wish to vary their care package (or any top ups they may be considering) following consideration of what they could afford with a deferred payment agreement, but should approach the process with an approximate idea of what their care costs are likely to be.

11.1 Top ups

In principle, people should be able to defer their full care costs including any top ups. At a minimum, when local authorities are required to offer a deferred payment agreement they must allow someone to defer their ‘core’ care costs. To ensure sustainability of the deferral, the local authority has discretion over the amount people are permitted to top up. It should consider any request for top ups, but retain discretion over whether or not to agree to a given top up and should accept any top up deemed to be reasonable given considerations of affordability, sustainability and available equity. The local authority should be mindful of the duties set out in relation to top ups and additional costs in the Care and Support and Aftercare (Choice of Accommodation) Regulations 2014.

In essence, the local authority retains a discretion as to whether it agrees to a top up on the basis of affordability, sustainability and available equity.

12. Sustainability

When deciding on the amount to be deferred in a discretionary deferred payment agreement (particularly when considering top ups), both parties should consider a range of factors to satisfy themselves that the arrangement is sustainable including:

• the likely period the person would want a DPA for (if they intend to use it as a ‘bridging loan’);
• the equity available;
• the sustainability of a person’s contributions from their savings (if they are making one);
• the flexibility to meet future care needs; and
• the period of time a person would be able to defer their care costs for.

Deferred payment agreements should prevent people from having to sell their home in their lifetime to pay for their care. The local authority should discuss with the person the projected limit of what their equity could cover, given their projected care costs, and how their care costs might change over time.

This may include a discussion of when they are likely to reach any of the income thresholds and may begin to qualify for local authority support in paying for their care.

If the person is requesting a top up, it is important that the local authority discusses what might happen to any top up requested if the person reaches the equity limit and moves on to local authority support in paying for their care, and ensures that a written agreement is in place (see Annex A: Choice of Accommodation and Additional Payments). In particular, the local authority should make the person aware that once they have reached the equity limit, the local authority may not be willing to fund their top up, and the person may need to find other ways to pay for it or be prepared for a change in their care package.

The local authority should also consider with the person the length of time that their intended contribution to care costs from savings would last, if they intend to contribute to their care costs from their savings. This should include consideration of the impact on care if the person’s savings are depleted (normally this would involve increasing the amount the person is deferring).

An important factor in the sustainability of a deferred payment agreement will be any future care and support needs someone might face. The local authority and the person concerned should consider allowing flexibility for changes in circumstance, including possible escalations of needs, when deciding how much someone should defer. The local authority and the person concerned  should factor any potential changes in circumstances into their considerations of sustainability.

When agreement has been reached between a person and the local authority as to how much they want to defer, the local authority must ensure this is clearly and unambiguously set out in the deferred payment agreement. See also Section 15, Making the Agreement.

The amount being deferred should be reviewed on a regular basis to ensure the deferred amount does not exceed the equity limit. The local authority should have particular regard to the amount deferred as it approaches the equity limit.

While the full costs of a person’s care may be deferred under an approved agreement, the amount to be deferred depends not only the equity limit but also on other factors such as the amount the person must pay weekly towards their care, the payment of top ups as well as the total amount of care costs which a person may need to fund. The local authority must be convinced of the sustainability of the arrangement and the deferred payment sum is safely secured against the deferred payment agreement.

Further details of local authorities’ responsibilities during the course of the DPA are set out below.

See Case Study: Deferred Payments Arrangements.

13. Obtaining Security

The  local authority must have adequate security in place when entering into a deferred payment agreement. The regulations set out one form of security that the local authority must accept, and also provide wider discretion for other forms of security to be accepted as they see fit. The local authority should consider whether another type of security could be provided if a person cannot secure their deferred payment agreement with a charge on a property.

One form of ‘adequate security’ would be the local authority securing a first legal mortgage charge against a property on the Land Register. The local authority must accept a first legal mortgage charge as adequate security and must offer a deferred payment to someone who meets the eligibility criteria for the scheme where the local authority is able to secure a first legal mortgage charge on the property.

In cases where an agreement is to be secured with a jointly owned property, the local authority must seek both owners’ consent (and agreement) to a charge being placed on the property. Both owners will need to be signatories to the charge agreement, and the co-owner will need to agree not to object to the sale of the property for the purpose of repaying the debt due to the local authority (following the same procedure as in the case where an individual is the sole owner of a property).

The local authority must obtain similar consent to a charge being created against the property from any other person who has a beneficial interest in the property.

Under the discretionary scheme, the local authority has discretion to decide what else may constitute ‘adequate security’ for a deferred payment agreement, in cases where a first charge cannot be secured. The  local authority’s decision should be based on an explicit and publicly accessible policy of what other types of security they are willing to consider in addition to a first charge, but the local authority may consider the merits of each case individually. Other forms of security a local authority may choose to consider include (but are not limited to):

• a third party guarantor – subject to the guarantor having / offering an appropriate form of security;
• a solicitor’s undertaking letter;
• a valuable object such as a painting or other piece of art; or
• an agreement to repay the amount deferred from the proceeds of a life assurance policy.

The local authority has full discretion in individual cases to refuse a deferred payment agreement if it is not satisfied that adequate security is in place. The security should also be revalued when the amount deferred equals or exceeds 50% of the value of the security to assess any potential change in the value (and consequently the person’s ‘equity limit’ should be reassessed in turn). After this revaluation, the local authority should revalue the security periodically to monitor any potential further changes in value. If in either case there has been any substantial change the local authority should review the amount being deferred as well, see Section 8, How much can be Deferred).

In summary, the Care and Support Statutory Guidance outlines what would be adequate security for an authority to enter into a deferred payment agreement. In most instances, this takes the form of a legal charge over the property. When the main asset is the home, the local authority will seek to place a first legal charge on the property.

In the case of a jointly owned property or where the adult has a beneficial interest and may not be a legal owner, the local authority must obtain the owner’s consent to having a charge being placed on the property. The other owners will need to be signatories to the charge agreement and also not object to the sale of the property to repay the debt payable to the local authority.

The local authority is advised to revalue the security when the amount secured under the deferred payment agreement reaches fifty percent of the value of the security. At this juncture, the local authority may wish to review the adult’s equity limit and the amount which can be deferred under the agreement. It is good practice for the local authority to monitor and revalue the security periodically to ascertain whether there are any substantial changes in the value of the property which may impact on the amount of the equity limit and the amount of care costs which may be deferred under the agreement.

14. Interest Rate and Administration Charge

The deferred payment agreement scheme is intended to be run on a cost-neutral basis, with the local authority able to recoup the costs associated with deferring fees by charging interest. The local authority can also recoup the administrative costs associated with DPAs, including legal and ongoing running costs, via administration charges which can be passed on to the individual. Administration charges and interest can be added on to the total amount deferred as they are accrued, although a person may request to pay these separately if they choose. The agreement must make clear that all fees deferred, alongside any interest and administrative charges incurred, must be repaid by the person in full. The local authority must also notify the individual in writing whenever they are liable for an administration charge.

Local authorities will have the ability to charge interest on any amount deferred, including any administration charge deferred. This is to cover the cost of lending and the risks to local authorities associated with lending, for example the risk of default. Where local authorities charge interest this must not exceed the maximum amount specified in regulations. A local authority may (but is not required to) charge the nationally-set maximum interest rate. The same interest rate must be charged on all deferred payments within a local authority.

The national maximum interest rate changes every six months on the first of January and July respectively, to track the market gilts rate specified in the most recently published report by the Office of Budget Responsibility (OBR) plus a 0.15% default component (for example, gilt rate 1% plus 0.15% equals a maximum interest rate of 1.15%). The market gilt rate is currently published in the Economic and Fiscal Outlook, which is usually published twice yearly alongside the Budget and Autumn Statement on the OBR website.

The local authority will have the ability to charge interest on any amount deferred, including any administration charge deferred. This is to cover the cost of lending and the risks to the local authority associated with lending, for example the risk of default. Where the local authority charges interest this must not exceed the maximum amount specified in regulations. The  local authority may (but is not required to) charge the nationally-set maximum interest rate. The same interest rate must be charged on all deferred payments within a local authority.

The local authority must ensure that any changes to the national maximum interest rate are reflected within their authority and are applied to any agreements they have entered into (unless they are already charging less than the national maximum). Individual agreements must also contain adequate terms and conditions to ensure that the interest rate within any given agreement does not exceed the nationally-set maximum.

The local authority must inform people before they make the agreement if interest will be charged, what interest rates are currently set at and when interest rates are likely to change. This is to enable people to make well-informed decisions about whether a deferred payment agreement is the best way for them to meet the costs of their care.

The interest charged and added to the deferred amount will be compounded, and the local authority should ensure when making the agreement that individuals understand that interest will accrue on a compound basis.

Interest can accrue on the amount deferred even once someone has reached the ‘equity limit’ (see Section 6, How much can be Deferred). It can also accrue after someone has died up until the point at which the deferred amount is repaid to the local authority. If the local authority cannot recover the debt and seeks to pursue this through the County Court system (see Annex D: Recovery of Debts), the local authority may charge the higher County Court rate of interest.

The local authority must set their administration charge at a reasonable level, and this level must not be more than the actual costs incurred by the local authority in provision of the Universal Deferred Payment Scheme, as set out in regulations. Relevant costs may include (but are not limited to) the costs incurred by a local authority whilst:

• registering a legal charge with the Land Registry against the title of the property, including Land Registry search charges and any identity checks required;
• undertaking relevant postage, printing and telecommunications;
• costs of time spent by those providing the service;
• cost of valuation and re-valuation of the property;
• costs for removal of charges against property;
• overheads, including where appropriate (shares of) payroll, audit, management costs, legal service.

The local authority should maintain a publicly available list of administration charges that a person may be liable to pay. It is good practice to separate charges into a fixed set up fee for deferred payment agreements, reflective of the costs incurred by the local authority in setting up and securing a typical deferred payment agreement, and other reasonable one time fees during the course of the agreement (reflecting actual charges incurred in the course of the agreement).

15. Making the Agreement

Where someone chooses to enter into a deferred payment agreement, the local authority should aim to have the agreement finalised and in place by the end of the 12 week disregard period (where applicable) (see Annex B: Treatment of Capital), or within 12 weeks of the person approaching the local authority regarding DPAs in other circumstances.

Decisions on a person’s care and support package, the amount they intend to defer, the security they intend to use and the terms of the agreement should only be taken following discussion between the local authority and the individual. Once agreement in principle has been reached between the local authority and the person, it is the local authority’s responsibility to put  the details agreed into a deferred payment agreement, taking the legal form of a contract between the local authority and the person.

The local authority should provide a hard copy of the deferred payment agreement to the person, and they should be provided with reasonable time to read and consider the agreement, including time for the individual to query any clauses and discuss the agreement further with the local authority.

The agreement must clearly set out all terms, conditions and information necessary to enable the person to ascertain his or her rights and obligations under the agreement.

These include:

1. terms to explain how the interest will be calculated and that it will be compounded if it is to be added to the deferred amount;
2. information on administrative costs the individual might be liable for;
3. terms to explain how the adult may exercise his or her right to terminate the agreement, the process for and consequences of terminating the agreement and specify what notice should be given (see Section 16, Terminating the Agreement);
4. terms to explain the circumstances in which the local authority might refuse to defer further fees (either when it is required to stop deferring, for example if the person has already deferred up to their ‘equity limit’, or when it has powers to stop deferring, such as when a person qualifies for local authority support in paying for their care; as set out in Section 6, How much can be Deferred and Section 2, Permission to Refuse a Deferred Payment Agreement);
5. that the local authority will secure their debt either by placing a legal (Land Registry) charge against the property, or by some other means specified;
6. a term requiring the local authority to provide the person with a written statement every six months and within 28 days of request by the person, setting out how much the person owes to the authority and the cost to them of repaying the debt;
7. a term which explains that the maximum amount which may be deferred is the equity limit and that this is likely to vary over time;
8. a term which requires the local authority to give the adult 30 days written notice of the date on which they are likely to reach the equity limit;
9. a term which requires the adult to obtain the consent of the local authority for any person to occupy the property; and
10. an explanation that the local authority will stop deferring its charges and making advances under a loan agreement if the person no longer receives care and support in a care home or supported living accommodation or if the local authority no longer considers that the adult’s needs should be met in such accommodation.

If the agreement is not for the deferral of charges due to the authority (a ‘loan’-style agreement), the agreement must also contain:

1. a term to make clear that the authority will make advances of the loan to the adult in instalments;
2. a term to make clear that the purpose of the loan is to pay for costs of care and support in a care home or supported living accommodation. This should explain:
   1. the consequences of any failure by the adult to pay those costs of care and support; and
   2. that the adult must inform the local authority if he or she no longer receives or intends to receive care in such accommodation.

The agreement should also stipulate:

1. the value of any accrued or possible administrative charges, and where possible a breakdown of their calculation;
2. the means of redress if either party feels the other has broken the terms of the agreement;
3. the person’s responsibilities regarding maintenance and insurance of their home;
4. the person’s responsibility to notify the local authority of any change to their income, home or care and support;
5. the person’s responsibility to notify the local authority if they intend to rent or sell their property and if someone has gained or may gain a beneficial interest in their property;
6. the local authority’s responsibility to give the person 30 days written notice if it intends to cease to defer charges (or make loan instalments) under the agreement;
7. a clear explanation of the consequences of taking out a DPA for the person and their property, including anybody who may reside in the property;
8. the equity limit of their security (as discussed above in the section entitled ‘how much can be deferred’) and the scope for this to change upon revaluation of the security used for the DPA;
9. the process for varying any part of the agreement;
10. the process by which the local authority can require a re-valuation of a person’s chosen form of security.

The local authority should ensure at a minimum that people sign or clearly and verifiably affirm they have received adequate information on options for paying for their care, that they understand how the DPA works and understand the agreement they are entering into; and that they have had the opportunity to ask questions about the contract. A term reflecting this should be included in the agreement itself.

The local authority will need to consider whether the deferred payment agreements they enter into are regulated credit agreements to which the Consumer Credit Act 1974 (CCA) and Financial Services and Markets Act 2000 (FSMA) apply.

The scope of ‘regulated credit agreements’ is set out in article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). A credit agreement is regulated unless exempt, and there are a number of exemptions in articles 60C to 60H of the RAO. It is likely that most DPAs will fall within such an exemption. If the agreement is regulated, it will need to comply with all applicable requirements of the CCA. In addition, the local authority will need a relevant permission from the Financial Conduct Authority (FCA), and to comply with the FCA’s rules and principles, unless the exclusion in article 72G of the RAO applies (if the credit agreement is within the scope of the Consumer Credit Directive FCA authorisation is required).

All deferred payment agreements will be subject to the Unfair Terms in Consumer Contracts Regulations 1999, so the terms will have to be written in plain, intelligible English and will not be binding if they are unfair to the borrowers. Local authorities will also have to ensure that they do not contravene the Consumer Protection from Unfair Trading Regulations 2008.

Under Section 79 of the Care Act, the local authority may delegate responsibility for deferred payment agreements to another body. This could potentially allow a number of local authorities to combine their collective resources and offer a regional solution tailored to the local conditions and the administrative burden they face. If the  local authority chooses to exercise their powers for delegation, the local authority must satisfy itself that the body taking on responsibility for DPAs is complying with all appropriate regulations and guidance (including but not limited to those governing deferred payments). Any and all duties in the Care and Support Statutory Guidance document, in the regulations and in the relevant sections of the Care Act apply equally to any delegated authority as they do to local authorities. The local authority should also seek feedback from people entering into DPAs to satisfy themselves that the service being provided meets the standards expected of the local authority. In the case of delegation of responsibility, the local authority remains ultimately responsible for (and liable for) the DPA.

16. The Local Authority’s Responsibilities whilst the Agreement is in Place

The local authority must at a minimum provide people with six monthly written updates of the amount of fees deferred, of interest and administrative charges accrued to date, and of the total amount due and the equity remaining in the home (the ‘equity limit’ discussed in Section 8, How much can be Deferred?). The local authority should also provide the person with a statement on request within 28 days. It may provide updates on a more frequent basis at its discretion. The update should set out the amount deferred during the previous period, alongside the total amount deferred to date, and should also include a projection of how quickly someone would deplete all equity remaining in their chosen form of security up to their equity limit.

The local authority should reassess the value of the chosen form of security once the amount deferred exceeds 50% of the security (and periodically thereafter), and adjust the equity limit and review the amount deferred if the value has changed.

The local authority may offer people a way to check their statement at any point in the year via an online facility.

The local authority may choose to develop advice and guidance around maintaining a home, renting, and income and also offer services/ products to help the person meet the requirements for maintenance and insurance, but cannot compel a person to take on their product. The local authority must accept reasonable alternative maintenance and insurance services. See Case Study: Deferred Payments Arrangements.

17. Contractual Responsibilities on the Individual whilst the Agreement is in Place

The deferred payment agreement sets out various contractual requirements on the individual as well as on the local authority.

If the local authority is exercising its right to require the adult to make a contribution from income, it should include in the legal agreement provisions requiring the person to notify the local authority of any changes in their income.

They must also notify the local authority of changes in their need for care and support, if those changes are ones which will mean that the authority must or is entitled to stop making further instalments under the agreement or to alter the amount of the instalments.

Similarly if the agreement has been entered into on the basis that  the adult’s property has not been disregarded for the purposes of the financial assessment in section 17 and it is a term of the agreement that the local authority will cease making or reduce the amount of instalments it makes, the agreement should require the person to inform the authority of changes which mean that the property may be disregarded.

The local authority should include in a contract provisions requiring someone to ensure that appropriate arrangements are in place to maintain their home whilst they are in care. In particular, that their home is maintained adequately, and require someone to have in place an arrangement for regular maintenance to take place.

The local authority should also require the person to have adequate insurance for their property. If their home is to be left empty for an extended period of time, the person will need to ensure their insurance covers this adequately and that any terms required by the insurer are met.

The local authority must include in a contract provisions which require the person to obtain the authority’s consent before allowing someone to move into the property after the agreement has been made. In these circumstances, the local authority may (if it is reasonable to do so) require written consent from the person which places the debt owed to the local authority above any beneficial interest they may accrue in the property.

In summary, when it has been decided by both the local authority and the individual that a deferred payment agreement is the appropriate step to take matters forward, a formal agreement is required. The Care and Support Statutory Guidance (9.74-9.84) provides a comprehensive checklist about the information that local authorities should gather for the contents of such agreements.

Local authorities must comply with Unfair Trading Regulations 1999 so the terms should be written in plain common sense English and will not be binding if the terms are unfair to the borrowers. The continuing obligations of the parties that remain in force for the duration of the agreement.

18. Termination of Agreement

A deferred payment agreement can be terminated in three ways:

• at any time by the individual, or someone acting on their behalf, by repaying the full amount due (this can happen during a person’s lifetime or when the agreement is terminated through the DPA holder’s death);
• when the property (or form of security) is sold and the authority is repaid [see Note 5];
• when the person dies and the amount is repaid to the LA from their estate.

Note 5

In the case that a DPA is agreed on the basis of a form of security other than property, local authorities will need to make provision in the agreement for conclusion of the DPA in the event that the given security is disposed of/comes to fruition.

All three scenarios for the termination of the agreement are discussed below, alongside the various options for repayment. On termination, the full amount due (including care costs, any interest accrued and any administrative or legal fees charged) must be paid to the local authority.

If a person decides to sell their home, they should notify the local authority during the sale process. They will be required to pay the amount due to the local authority from the proceeds of the sale, and the local authority will be required to relinquish the charge on their property.

A person may decide to repay the amount due to the local authority from another source, or a third party may elect to repay the amount due on behalf of the individual. In either case, the local authority should be notified of the person’s/the third party’s intention in writing, and the local authority must relinquish the charge on the property on receipt of the full amount due.

If the deferred payment is terminated due to the person’s death, the amount due to the local authority must be either paid out of the estate or paid by a third party. A person’s family or a third party may wish to settle the debt to the local authority by other means of repayment (as may be the case if the family wanted to avoid having to sell the property or means of security), and the local authority must accept an alternative means of payment in this case, provided this payment covers the full amount due to the local authority.

The executor of the will or administrator of the estate can decide how the amount due is to be paid; either from the person’s estate (usually via the sale of the house or potentially via a life assurance policy) or from a third party source.

A local authority should wait at least two weeks following the person’s death before approaching the executor with a full breakdown of the total amount deferred (but a family member or the executor can approach the local authority to resolve the outstanding amount due prior to this point).

Responsibility for arranging for repayment of the amount due (in the case of payment from the estate) falls to the executor of the will.

Interest will continue to accrue on the amount owed to the local authority after the individual’s death and until the amount due to the local authority is repaid in full.

If terminated through a person’s death, the amount owed to a local authority under a deferred payment agreement falls due 90 days after the person has died. After this 90 day period, if a local authority concludes active steps to repay the debt are not being taken, for example if the sale is not progressing and a local authority has actively sought to resolve the situation (or the local authority concludes the executor is wilfully obstructing sale of the property), the local authority may enter into legal proceedings to reclaim the amount due to it. Further information on debt recovery is included at Annex D.

In whichever circumstance an agreement is terminated, the full amount due to the local authority must be repaid to cover all costs accrued under the agreement, and the person (and / or the third party where appropriate) must be provided with a full breakdown of how the amount due has been calculated. Once the amount has been paid, the local authority should provide the individual with confirmation that the agreement has been concluded, and confirm (where appropriate) that the charge against the property has been removed.

In summary, when the agreement is terminated on account of the death of the person, it is advised that the local authority should not approach the executors about the repayment of the deferred sum of the agreement for two weeks after the person’s death.

Interest continues to accumulate under the deferred agreement until the sum is repaid fully. Ninety days after the death of the person, the sum of the full amount accrued should be repaid to the local authority. Where the local authority believes the monies are unlikely to be repaid under the agreement, the local authority may begin proceedings to recover the monies under the agreement.

19. Further Reading

19.1 Relevant information

Chapter 9, Deferred Payment Arrangements, Care and Support Statutory Guidance (Department of Health and Social Care)

See also Deferred Payment Agreement Case Studies.

Appendix 1: Care and Support (Deferred Payment) Amendment Regulations 2017

The Care Support (Deferred Payment) Regulations 2014 are amended by the Deferred Payments Regulations 2017 (“amended regulations”) which changes the qualifying criteria.

At regulation 2 2 (a) (ii) of the amended regulations it states:

“a local authority is required to enter into a deferred payment agreement with an adult if an adult’s needs for care and support…are not being or going to be met  by the local authority under section 18 of the Care Act  and are needs that the local authority considers it would be required to meet under that section by the provision of accommodation in a care home but for the fact that the local authority is satisfied that the adult’s financial resources are above  the financial limit.”

The same provision is inserted into Regulation 3 which deals with circumstances when a local authority is permitted into a deferred payment agreement

At Regulation 3 (1) (a)(ii) of the amended regulations it states,

“A local authority is permitted to enter into a deferred payment agreement with an adult if.. the adult’s needs for care and support ….are not being or going to be met by the local authority under section 18 and are needs that the local authority considers it would be required to meet under that section by the provision of accommodation in a care home but for the fact that the local authority is satisfied that the adult’s financial resources are above the financial threshold.”

The original Care Act legislation included a requirement that local authorities were meeting or going to meet that individual’s needs or believed they would meet their needs if asked.

Local authorities are not required to provide or arrange care home for persons with over £23,250 of assets (self-funders) under section 18 of the Care Act. This generally meant a local authority generally only had to offer a deferred payment agreement if they were meeting or going to meet an adult’s needs under section 19 of the Care Act or considered that they would be asked to do so.

This was not the intended effect of the legislation because it did not protect self-funders from having to sell their home in their life time to pay for their care.

The changes to the legislation and regulations mean that local authorities will have to enter into a deferred payment agreement with a self-funder if

• the local authority would be required to meet their needs but for the fact that they have assets over the upper limit, and
• they meet the other criteria for a mandatory deferred payment agreement.

Local authorities will not, however, be required to meet or fund the needs of a self-funder.

It also does not mean under the new regulations local authorities have to enter into a deferred agreement with an individual who has more than £23,250 other than their main or only home.

It simply means a local authority cannot refuse a loan type of deferred payment agreement to an individual who meets all the mandatory criteria for the deferred payment agreement as set out in Regulation 2 (1) of the Regulations which includes agreeing to the terms and conditions of the agreement.

Prior to the revised regulations, there was no legal requirement on local authorities to enter into a deferred payment agreement unless they had chosen to meet a self-funder’s needs or believed that they would choose to do so, if asked.  As a consequence, local authorities had a choice to exercise before a self-funder met the criteria for a mandatory deferred payment agreement as set out in Regulation 2 (1) of DPA Regulations and the individual became entitled to the benefit of the scheme. This was not the intention of the original deferred payment legislation. It meant that some individuals who were intended to qualify were being denied a loan type deferred payment agreements.

The amended regulations will mean that all individuals who were originally intended to qualify for mandatory deferred payment agreement will now qualify under law which was the original policy intention of the legislators. It also means that local authorities cannot refuse loan type deferred payment agreements where an individual meets the criteria and requests a mandatory deferred payment agreement, as set out in Regulation 2 (1) of DPA Regulations

1. Charges

Local authorities can charge different administration fees for loan type as opposed to traditional deferred payment agreements. The local authorities are permitted to charge for its costs of administration for such an agreement. The costs are to include costs reasonably incurred by the local authority in agreeing, maintaining and terminating the agreement. The costs to the local authority are different for a loan type agreement rather than a traditional agreement. The local authority may charge respective adults different amounts but subject to what is said about average costs they may not charge either adult more than the actual costs incurred in respect of the agreement. All administration fees should be reasonable and must be no more than the costs incurred and local authorities must make individuals aware of the administration fees that are likely to be charged before entering into such agreement.