Understanding deferred payment agreements for elderly care

 

For those looking to move into a care home, it can be a confusing time - especially when it comes to understanding how to pay for the care required.

Some people might rely on savings, or friends and family, but others might want to use the value of their home to help pay for the costs. This is where Deferred Payment Agreements come in. 

What is a Deferred Payment Agreement and how does it work?

If your loved one is looking at moving into a care home, and most of their money is tied up in their home, the local council could offer a Deferred Payment Agreement. 

Introduced by the Government in 2015, a Deferred Payment Agreement (DPA) is a legal, financial arrangement between a homeowner and their local authority. It allows an individual to defer paying for their care services until a later date - usually until after their passing or until financial circumstances have changed. 

It protects an individual’s assets, whilst allowing them to manage the costs of residential, dementia or nursing care.

They are bound to specific rules and regulations which can vary depending on your local authority. It’s worth doing some research into your council’s eligibility criteria and any other terms before deciding on a Deferred Payment Agreement, and it’s always valuable to seek advice from financial and legal professionals before committing to anything.

Who is eligible for a Deferred Payment Agreement?

To be eligible for a Deferred Payment Agreement, there is a list of criteria you must meet in order to be considered.

First and foremost, your local authority must agree that you need to be in a care home rather than remaining in your own home. It might be that you’d benefit from round-the-clock care, or from being somewhere with a better quality of life, like you’d expect in a Barchester care home.

If you’re deemed eligible from a care perspective - following a needs assessment - the council will then take a look at your assets. You must be a homeowner or have another asset with which the local council can use as security to be considered for a DPA. The value of your home will be taken into account in deciding what you should pay for your care home fees, and is worked out in accordance with whether or not you have a partner or dependent living in the home.

If you do own a home, you must then have savings and capital of less than £23,250 if you live in England, £18,500 in Scotland, and £50,000 in Wales. This isn’t including your share of the value of your home. 

At the time of writing, from October 2025 the government has proposed a change to the social care cap. This means that anyone in England will not need to spend more than £86,000 on their personal care over their lifetime. This could affect how much you’re expected to pay. However, please ensure to check the government website for the most up-to-date information about the proposed cap.

It’s also important to note that you must have enough equity in your home to cover at least 12 months of care costs, and that there is a responsible person willing to keep your property in a good condition, to avoid it depreciating in value.

If you meet all of the eligibility criteria, your local authority can then discuss the option of a Deferred Payment Agreement with you. It’s worth noting that some mortgage lenders won’t let you take out another loan secured on your home, so you should always check the terms and conditions of your lender.

When should you use a Deferred Payment Agreement?

A DPA is most commonly used when someone’s savings are low, but the value of their home is taking them over the threshold for paying for care costs. It means that they can keep their home and use the money which is tied up in its value to pay for weekly care costs.

It’s great for people who don’t want to sell their home straight away, or can’t sell their home. It’s worth noting that if your partner, a dependent child, a relative aged over 60, or someone who is sick or disabled still lives in your home, it won’t be counted as part of your assets. 

This means that you won’t have to use the wealth tied up in your home to pay for care, and therefore won’t need to organise a DPA.

When does a Deferred Payment Agreement end?

Deferred Payment Agreements tend to end once the person who has taken out the agreement has passed away, or if the person chooses to sell their home at a later date. 

If someone chooses to sell their home, the money owed on the DPA including interest and admin charges must be repaid. If the individual dies, the executor of the person’s will is responsible for paying the amount owing.

Costs involved in a Deferred Payment Agreement

There are a number of additional costs that can come with taking out a Deferred Payment Agreement, ranging from council fees to interest charges.

Legal fees and administration costs

Depending on your local authority, there may be administration fees charged. These can cover everything from home valuations, Land Registry fees and legal fees.

The local council fees must be reasonable and not exceed their costs, and they must make a list of these charges publicly available.

You can choose to defer your legal and administration costs too, although most councils will charge interest on any deferred payments of costs - usually at the same interest rate as your Deferred Payment Agreement.

Interest charges

Interest charges are also something to bear in mind. Your local council doesn’t have to charge interest, but they might choose to. This isn’t fixed and can change as often as every six months. However, councils cannot set the interest charges above a government-approved standard rate, plus 0.15%. This is applicable in England and Wales.

In Scotland, there are no interest charges during the Deferred Payment Agreement, but interest can be charged when the agreement is terminated by the individual or from 56 days after their death. Again, this rate is set by the local council and must be a ‘reasonable rate’.

If the money isn’t repaid on time at the end of the agreement, the local council might charge extra interest until the debt is settled. There might also be an ongoing administrative fee plus interest.

Pros and Cons of Deferred Payment Agreements for elderly care

When it comes to elderly care funding, there are a number of options to help with financing senior care. Deferred Payment Agreements are a good option for those with equity stuck in properties, and those who do not have many savings otherwise. 

However, there are advantages and disadvantages of Deferred Payment Agreements, and it’s always worth weighing up the pros and cons of all financing options, before committing to one.

Advantages of choosing a Deferred Payment Agreement

Deferred Payment Agreements give the opportunity to be more selective with your care options. For example, if you were to choose a care home like the premium, purpose-built homes which Barchester offer, with great facilities, a fantastic quality of life and welcoming environment, that is more expensive than what the council would usually fund - you might be able to defer the additional costs for the care home, too.

This means that you could have more choice over the type of care home you would like.

Another benefit of Deferred Payment Schemes is that your care home fees will be paid for without you needing to sell your property in your lifetime, if you wish. Alongside this, if you find another source to pay for your agreement when it ends, you might not even need to sell your property at all. 

Additionally, if your property increases in value over the lifetime of your DPA, this could help to offset your deferred debts.

Some people may wish to rent out their home during the period of their agreement, which again can help to offset any deferred costs. Some councils do have rules on renting whilst your house is being used as leverage for your Deferred Payment Agreement, so it’s always worth checking before you agree to rent out your property.

Finally, individuals can still receive disability benefits such as Attendance Allowance and Personal Independence Payments (PIP) whilst deferring care costs. These are counted as income when your weekly contributions to your care is worked out, and therefore will help to reduce the amount you need to defer.

Disadvantages of using a Deferred Payment Agreement

There are a number of things to think about before agreeing to deferred payments. You will be expected to maintain your property to ensure that it doesn’t depreciate in value, which would negatively impact your agreement.

You’ll also be expected to keep your home insured - even if it’s empty - for the duration of your agreement.

Financially, the implications of set up fees, annual administration charges and interest rate on your deferred debts might be off putting. It’s worth taking into consideration the potential for any additional costs outside of the agreement.

If the value of your property decreases, you could also be left with less equity once the debt is repaid.

For those considering renting their property whilst they’re in a care home, the responsibility of being a landlord is something to think about. You’ll need to ensure that your property meets legal requirements for rental properties, maintain the properties standard, and answer any enquiries, concerns and potential repair requests from your tenant(s).

How to apply for a Deferred Payment Agreement

If you or a loved one have had a needs assessment, and have been told that you need to move into residential care, you can then contact your local authority to request a Deferred Payment Agreement. 

The entire process will rely on your local authority’s regulations and processes, and it might take a few months to get things set up. With that said, your council will likely disregard the value of your property for the first 12 weeks of your residential care stay in order to give enough time for the agreement to be organised.

Key considerations when applying for a Deferred Payment Agreement

There are a number of things to consider when applying for a Deferred Payment Agreement, including the advantages and disadvantages listed above. 

For those who already live in a care home, it is possible to apply for a Deferred Payment Agreement via your local council. There is no limitation on the timeframe in which you are allowed to apply, and those who went into care before DPA’s were in existence (pre-2015) may want to assess deferred payments as an option for continuing to pay for their care.

Anyone entering into an agreement is allowed to keep some income back in order to pay for costs that might crop up to maintain their home. This is called a Disposable Income Allowance (DIA) and is currently set at £144 per week.

Repaying a Deferred Payment Agreement

The money owed on an agreement must always be repaid if you choose to sell your home. This includes any interest, administration and legal charges which have incurred over the period of the agreement.

If you or your loved one passes away, the organisation of payment falls on the executor of your will. They will be responsible for paying the amount owed either 90 days after the date of death, or on the date in which the property is sold or disposed of.

Again, the regulations behind repayments can change depending on your local authority, and some may even give a longer period for the executor to pay, if there are any difficulties in repaying - though it’s always worth speaking with them to ascertain what their rules are.

Alternatives to Deferred Payment Agreements for senior care financing

If a Deferred Payment Agreement isn’t an option for you or your loved one, there are a number of alternatives for financing senior care.

Self-funding is an option, which means utilising savings or other owned assets to help pay for care. Self-funders are still entitled to some government support including Attendance Allowance and PIP - where relevant. 

If you’re in a position to sell your house, both this and equity release are good options - especially for those already living alone. If you’re looking to release equity or sell your home to pay for care however, it’s important to think about if this will affect your spouse, or any other family members. 

A long-term care annuity or immediate needs annuity can secure a guaranteed income with a care funding plan in order to pay for your care fees. 

Other alternatives include local-authority funded care, though this is measured against your assets, and depends entirely on what you already have in savings and in property. The NHS does fund some care, though this is limited and you will need to undergo assessments by healthcare professionals to understand what help you might need and any risks to your health.

Additional resources and information on Deferred Payment Agreements

When it comes to making a decision about elderly care funding and elderly care options, it’s always best to first talk to family and friends about any decisions you make. 

If you decide that a Deferred Payment Agreement is the best way forward for you or a loved one, your local authority is the best port of call in the first instance. You’ll be required to have a needs assessment before discussing an agreement, but this can be organised through your local authority or your GP. 

It’s also worth doing as much research as possible before speaking with your local council, including current means-tested thresholds.