What is a Deferred Payment Agreement?
People who own their own home and are moving into a care home long-term may need to use the value of their property to pay the fees through a Deferred Payment Agreement (DPA).
A DPA is a type of loan. Under the legal agreement, the Local Authority will pay the care home for your care home costs on your behalf and then you pay the Local Authority back when your home is sold. You must also pay interest and administration fees.
A Deferred Payment Agreement is only available for long-term care which means you cannot use it for temporary care home stays.
Am I eligible for a deferred payment agreement?
You can apply for a Deferred Payment Agreement after you have had your needs assessed by the Local Authority. As part of the Needs Assessment, the Local Authority will conduct a Financial Assessment, also known as a means test, to look at your income, savings, capital and assets.
To be eligible for a Deferred Payment Agreement, you must have savings or capital (excluding the value of your property) of less than the upper means test threshold – which is currently £50,000 in Wales.
The property itself must also be eligible for a Deferred Payment Agreement. Sufficient equity must be available in the property and a valuation to check this will be required. The Local Authority must be able to secure a legal charge on the property. To do this the property must be registered with Land Registry so if the property is unregistered it must be registered before a Deferred Payment Agreement can be implemented.
In most cases the Local Authority’s charge will need to be the first change on the property. A Deferred Payment Agreement may be possible if you own the property with another person or if there are already charges secured on the property. You will need to discuss this further with the Local Authority.
Deferred Payment Agreement interest rates and administration fees
The Local Authority will charge interest on a compound basis as part of the Deferred Payment Agreement. The maximum interest rate that the Local Authority is allowed to charge is set by the government. In Wales, the interest rate is based on the gilt market rate plus 0.15 per cent and is revised every six months in January and July, you can find out further and updated information regarding these rates on The Office for Budget Responsibility (OBR) website.
The Local Authority applies an initial administration fee of £250 for set-up of a Deferred Payment Agreement.
How much can I defer?
You can defer your care costs apart from any weekly sum which you must pay from your income. This will be determined by the Financial Assessment.
You can also defer the interest and administration fee. You cannot defer a greater sum than the equity in the property.
When is the money paid back to the Local Authority?
If you sell your home whilst you are still a resident in a care home all sums due under the Deferred Payment Agreement must be paid at the time of the sale.
If you die, then the date for payment of all sums due under the Deferred Payment Agreement will be 90 days after your death. If the sum is not paid by this time the Local Authority will takes steps to enforce the debt.
To ensure it receives repayment of the money owed under the Deferred Payment Agreement the Local Authority will contact the Land Registry and put a legal charge over your property. Once the outstanding amount has been repaid the charge over the property will be removed.
THE LOCAL AUTHORITY STRONGLY ADVISES YOU BEFORE ENTERING INTO ANY CONTRACT AND/OR FINANCIAL PRODUCT TO SEEK INDEPENDENT LEGAL AND/OR FINANCIAL ADVICE.