Deferred Payment Agreements for Care Home Fees

A deferred payment agreement is a loan from your council, secured on your home, that covers your care home fees while you are living in the home. The council pays the fees and reclaims the money later, usually when the property is sold or from your estate when you die. It is not free care: it is a way of delaying the sale of the house, not avoiding the cost¹.

If your home is included in the financial assessment, the council must offer you a deferred payment agreement when you meet the eligibility criteria¹. In England and Northern Ireland the means test uses a £23,250 upper capital limit, with a lower limit of £14,250³. Between those two figures, the council assumes you have extra weekly income of £1 for every £250 you hold above £14,250, which is called tariff income⁴.

The council can charge an admin fee to set up the agreement, and interest can be charged on the deferred fees¹. The loan is repaid from the property when it is sold, or from the estate when you die². A spouse or partner living in the home normally postpones repayment until they die or move out.

A deferred payment agreement is a loan against your home, not free care

The agreement works by the council lending you the money to cover your care home fees and then reclaiming it when the property is eventually sold⁴. You receive help with the cost of your care home fees from the council, on the condition that you will pay them back at a later point². The council is usually repaid from the value of your property when it is sold².

This is different from a benefit or a grant. It is a debt secured against your home, and it grows if interest is charged on the deferred amounts. The council can charge an admin fee to set up the agreement, and interest can be charged on deferred fees¹. Because the loan is secured on the property, the council has a claim on the value of the home, and the debt is settled before anything is passed on to heirs.

The alternative to a deferred payment agreement is usually to sell the home during your lifetime, or to pay the fees from other capital. A deferred payment agreement lets the sale be postponed, which matters if a spouse, partner or dependent still lives there, or if the property market is weak. It does not reduce the amount you owe: the fees still have to be paid, plus any interest and admin charges.

Who the council must offer a deferred payment agreement to

If your home is included in the financial assessment, your council must offer you a deferred payment agreement if you meet certain eligibility criteria¹. The council may offer you one so you do not have to sell immediately⁴. The offer is not automatic in every case: it depends on your home being counted in the assessment and on the criteria being met.

The criteria normally include needing care in a registered care home, having capital that is mostly tied up in the property, and the property being suitable to use as security. If the council says it will not offer an agreement, ask for the reasons in writing. The rules differ across the UK, so check the guidance for where you live: Paying for Care in England, Paying for Care in Scotland, Paying for Care in Wales and Paying for Care in Northern Ireland.

A care needs assessment is separate from the financial assessment and is free. You can ask for one whatever your savings. The financial assessment decides what you contribute towards your care; the care needs assessment decides what help you need. See Care Needs Assessments and Financial Assessments for how the two fit together.

If you are paying a top-up fee to a more expensive home, that is allowed if you have a deferred payment agreement with the council⁷. Top-ups are usually paid by a third party, such as a family member, and are not covered by the deferred payment agreement itself. See Care Home Top-Up Fees for how they work.

The means test: £23,250 upper limit in England and Northern Ireland

In England and Northern Ireland, the council care funding means test uses a £14,250 lower capital limit and a £23,250 upper capital limit³. Below £14,250, capital is ignored for the means test. Above £23,250, you are normally expected to pay your own care costs in full. Between the two, the council assumes you have extra weekly income from your capital.

The means test looks at capital, not just income. Savings, investments and the value of your home can all count, though the home is usually disregarded while a spouse or partner lives there. If you give away assets to reduce your capital, the council can treat this as deliberate deprivation and assess you as if you still had them. See Giving Away Your Home or Money Before Care for how that works.

The upper limit is not the same across the UK. In Wales, there is an upper limit of £24,000 of savings or capital to get local authority funding⁸. In Scotland, the upper capital limit is £36,750 for people who are better off as a result of receiving personal or nursing care payments from the council⁷. These figures are different from England and Northern Ireland, so the point at which you become self-funding depends on where you live.

Admin fees and interest on deferred fees

The council can charge an admin fee to set up the deferred payment agreement, and interest can be charged on deferred fees¹. The fee and the interest rate are set by each council, so they vary. Ask your council for its current charges before you sign, and for a written statement of how interest is calculated and when it is added to the loan.

Interest usually rolls up, meaning it is added to the amount you owe rather than paid monthly. Over several years in a care home, that can add a significant amount to the debt. The longer the agreement runs, the more interest builds up, which is why the timing of the sale matters. If the property is sold quickly, less interest accrues; if it is held for years, more does.

The agreement should set out the rate of interest, the amount of credit, the number and frequency of payments, the amount of each payment, and the consequences of failing to pay¹⁰. It should also cover the circumstances in which charges for late or missed payment will be applied and the amount of those charges, plus the risk of an impaired credit rating¹⁰. If you are struggling, firms are expected to contact you and explain what a missed repayment means, and to provide support¹¹.

How the loan is repaid: sale of the home or from the estate

The council is usually repaid from the value of your property when it is sold². If the property is not sold during your lifetime, the agreement is repaid from the estate when you die¹. The debt does not disappear at death: it becomes a claim on the estate, dealt with alongside other debts by the executor. See What Happens to Debts When Someone Dies for how estates settle debts.

If a spouse or partner still lives in the home, repayment is normally postponed until they die or move out. This protects the surviving partner from being forced to sell. Once the property is sold, the sale proceeds are used to repay the outstanding mortgage debt, the lender's legal costs, estate agent or auction house fees, and bills for repairs and maintenance¹². The deferred payment agreement is repaid from what remains, alongside any other claims on the estate.

The amount owed is the fees the council paid, plus any admin fee and interest. If the property sells for less than the amount owed, the shortfall is normally written off by the council, because the agreement is secured on the property and the council cannot pursue the estate for more than the home is worth. Check the terms of your agreement for how a shortfall is handled.

Deferred payment agreement or equity release

A deferred payment agreement is arranged through the council and is tied to your care fees. Equity release is a commercial product arranged with a provider, and the money can be used for anything. With a lifetime mortgage, the loan plus interest is repaid from the sale of the property, either on death or second death of the applicants, or on moving into long-term care¹⁴. The loan and the rolled-up interest is repaid by your estate when you either die or move into long-term care¹⁵.

The two options differ in who provides them, what they cost and what happens if you need to move. A deferred payment agreement is only available if you meet the council's criteria and your home is in the financial assessment. Equity release is available to homeowners over a certain age, subject to the provider's terms, and does not depend on a care needs assessment. For a side-by-side comparison, see Deferred Payment Agreement or Equity Release for Care Fees.

Neither option is free. Both involve a debt secured on the home, and both reduce what is passed on to heirs. The right choice depends on your circumstances, the costs quoted, and whether you want the council or a commercial provider to hold the charge. Free, impartial help is available from MoneyHelper and from Age UK, and a solicitor can explain the terms of either agreement before you sign.