Deferred payment schemes are offered by local authorities to help those without immediate access to care home funding to pay for their own care in a more flexible way. Effectively it delays the payment, with the money only due should you leave the residential home you are currently in or sell your home.
Otherwise, the repayment is due upon death. Deferred payment schemes aren’t suitable for everyone – and only certain individuals are eligible. In this article, we explore deferred payment schemes in detail to help you to decide whether it’s an appropriate way for you to cover your care home costs.
Deciding which type of care home funding to choose is one of the most stressful elements for individuals and their relatives seeking care – especially those without the money immediately at their disposal.
Most people will have the majority of their financial assets tied up in their property – without the cash to put towards care home funding. A deferred payment scheme is offered and provided by your local authority.
In this situation, they may offer you the option of delaying the payment of your care home costs. This means that you won’t need to sell your home when you go into residential care to provide care home funding.
To be eligible for a deferred payment agreement to assist with your care home funding, the value of your savings and capital (not including the value of your home) have to be less than £23,250 if you live in England. If you live in Scotland the amount is £26,250, with the threshold set at £24,000 in Wales.
Therefore this type of care home funding is only suitable for those who do not have many additional financial assets, such as savings, bonds or shares. You can usually only secure 70-80% of your home against your care home fees – local authorities are unlikely to offer over 90% of the value of your home towards care to allow for decreases in market value.
It’s also key to consider whether there is another person living with you who needs to reside in the property.
If someone lives with you who will remain living there (and will need to stay in the long-term) you won’t be able to access a deferred payment agreement. This includes spouses, children and other relatives.
but in essence rather than your local authority giving you the money you can take the money directly from your house from an equity release company.
Here is a short video that explains how equity release works.
A deferred payment scheme is solely set up for the purpose of paying for care home fees. It is not suitable for other types of care, such as home care – and is most appropriate for individuals who know they will be in residential care for a long period of time.
Firstly, you can only apply to use a deferred payment agreement after you have been in a residential care home or nursing care home for 12 weeks or more.
This is important when considering how you’ll be paying for care home fees – as it’s an option you can only explore when you’ve already made your selection.
When you do apply, your local authority will need to assess your financial circumstances and see how much you can afford to contribute towards your care costs before they will agree to pay for care home fees on your behalf.
Under this approach, the local authority would make up the shortfall of the money needed when you’re paying for care home fees.
As soon as you know you will be paying for care home fees it’s a good idea to consider this option – especially if you know you may not have immediate access to the funding you need for your chosen care home.
A deferred payment scheme does not have to be taken out straight away. This means that it could be an option for you later in life or a little further down the line – and could comprise a part of your funding plan as a whole.
For example, you may have the funds you need to pay for your care now, but expect you’ll need to use equity tied up in your property within the next five to ten years.
In these circumstances, deferred payment agreements can be implemented at a later date as appropriate to fund the rest of your care and ensure that you remain in a home you are comfortable and happy in.
Using a deferred payment scheme to help with care home costs doesn’t necessarily have any additional cost attached to it.
Using a deferred payment agreement will mean that your local authority will effectively give you a loan towards your care home costs or residential care fees. The local authority may give you the money as an interest-free loan to cover the care home costs, or they can charge you interest on the loan, but it can’t be more than a government-approved standard rate.
The amount of interest (if applicable) may, of course, affect your decision to use a deferred payment scheme as a method of covering or subsidising your care home costs.
For this reason, it’s important to research your local authority’s guidelines prior to making a decision so that you factor in any additional costs you’ll be liable to pay.
Can I rent out my property to earn extra money or pay my mortgage?
The short answer to this is yes – but only if the local authority allows it and agrees to it. If you plan to rent your property whilst in a deferred payment scheme you’ll need to notify them and ask for their permission.
It’s also worth remembering that your rental income may push you over the threshold of eligibility for deferred payment scheme provision.
When is the money paid back to my local authority?
When you enter into a deferred payment agreement, you have to sign a legal agreement with your local authority. This will state that any money owed will be paid when your home is sold.
The local authority will, in most circumstances, ensure that any outstanding monies are paid by contacting the Land registry and putting a legal charge over your property. Once the outstanding amount has been repaid the charge over the property will be removed.
If you sell your home whilst you are still resident in a care home, or choose to leave the care home, any outstanding monies have to be paid within 56 days.
If you die, then any outstanding money has to be paid within 90 days of your death.
This is why it’s important to consider the long-term aspect (and costs) of your care. If you wish to leave your property or any money to relatives then this may not be the best option for you. It may also leave them in difficulty should you die without having made appropriate financial arrangements.
Additionally, you’ll need to ensure that the establishment you’re in now is likely to be one you’ll remain in for a long period of time. Changing residential homes will effectively end the agreement, and you could then have to sell your home or find the funds to repay your local authority sooner than you had planned to.
What are the benefits of a deferred payment scheme?
The obvious benefit of a deferred payment agreement is that the local authority will pay for your care home costs, so you don’t need to find the money straight away. This means you are able to potentially choose a better quality care home than what your local authority may be prepared to pay for.
The cost of the loan from the local authority only builds for as long as you are in care. If unfortunately, your condition is terminal, and you only need access to care for a short period of time, then this may be a worthwhile option for you.
You will still own your home whilst you are in care, therefore you will continue to benefit from any rise in house prices, which in effect will be helping to meet your care costs.
What are the risks involved in a deferred payment scheme?
Whilst there are some obvious advantages, there are also some disadvantages for you to consider. For example, as your property remains your responsibility, you will still be responsible for its upkeep and maintenance, which includes maintaining insurance.
If you have still have a mortgage
outstanding on your property then you will have to continue paying it. In addition, if you are looking to use a deferred payment scheme you will need to discuss this with your mortgage provider due to the fact the local authority will look to take a charge on the property.
In addition, if you have already entered into an equity release scheme then you may not be able to use a deferred payment scheme.
If you were hoping to pass your property on to the family as an inheritance, a deferred payment scheme can complicate things, as it is likely the house will have to be sold in the future.
This obviously reduces the amount of inheritance but also requires pro-active financial action when the time to sell comes. You’ll also need to ensure that any executors of your will are fully aware of the situation, as they will be handling the repayment once you are gone.
Is a deferred payment scheme suitable for nursing home fees?
Deferred payment schemes can be used for a wide range of care provision – including the payment of nursing home fees and sheltered accommodation. Nursing home fees will be subject to the same terms and conditions as general care home costs.
In fact, a deferred payment scheme may be a more appropriate option for those looking to cover their nursing home fees, as they are generally more suited to those looking for a long-term option.
If you’re happy with your nursing home and know that you are likely to spend the rest of your life there, then a deferred payment scheme may be a better option which will help you to meet (and give you peace of mind over) your nursing home fees.
This is why it’s still important to consider all aspects of a deferred payment scheme before using one to cover or subsidise nursing home fees.
Deferred payment schemes are not yet available or suitable for home care provision.
What should I do next?
If you’re considering a deferred payment scheme then you will need to consider a few key points as covered in this article. These include:
- Local authority costs: Make sure you are aware of any interest you’ll be liable to pay on your loan so that you can factor this in to your decision accordingly.
- Future financial situation: If you wish to provide an inheritance (using your property to do so) a deferred payment scheme could deprive you of that option.
- Future health situation: If your health circumstances are likely to change then you will need to carefully consider whether a deferred payment scheme is right for you. Remember that if you move from the residential home you are in (or return home) your agreement will end, and you’ll be liable to repay the loan within a few months.
- Other options: If you’re unsure as to whether a deferred payment scheme is going to be the best option for you then it’s always a good idea to fully understand any alternatives available.
If you are thinking about other ways to fund your care home costs or are undecided and need further information then we always recommend you speak to a specialist advisor. A professional financial advisor who has a special interest in funding care will be able to:
- Advise you on the alternative options that are available
- Advise you on the scheme offered by your local authority and how this may compare against alternative options that are available
- Advise you on the cost of taking on a deferred payment scheme