Support and help for adults

What is the Deferred Payments Scheme?

The Deferred Payments Scheme is designed to help you if you have been assessed as having to pay the full cost of your residential care but cannot afford to pay the full weekly charge because most of your capital is tied up in your home.

Effectively the scheme offers you a loan from the Council using your home as security. It doesn’t work in exactly the same way as a conventional loan – the local authority doesn’t give you a fixed sum of money when you join the scheme but pays an agreed part of your weekly care and support bill for as long as is necessary.

You will pay a weekly contribution towards your care that you have been assessed as being able to pay from your income and other savings.

The Council pays the part of your weekly charge that you can’t afford until the value of your home is realised.

The part the Council pays is your ‘Deferred Payment’.

Deferred payments are made direct to the care home although ‘loan style’ deferred payments can also be considered. This is where payments are made direct to you and the council loans you the approved cost of the care in instalments, less the on-going contribution you are required to make.

The deferred payment builds up as a debt, which is cleared when the money tied up in your home is released. For many people this will be done by selling their home, either immediately or later on. You can also pay the debt back from another source if you want to.

However, you do not have to sell your home if you don’t want to – you may, for example, decide to keep your home for the rest of your life and repay out of your estate, or you may want to rent it out to generate income. If you do this, you will be expected to use the rental income to increase the amount you pay each week, thus reducing the weekly payments made by the Council, and minimising the eventual deferred payment debt.

In order to apply for the deferred payments scheme you must:

• have capital (savings) excluding the property of less than £23,250
• be assessed by Redbridge Council as requiring and entering permanent residential or nursing care in a registered care home
• have sole legal ownership of a property, which is not benefitting from a property disregard, and ensure your property is registered with the Land Registry (if the property is not, you must arrange for it to be registered at your own expense)
• have the mental capacity to enter into a deferred payment agreement or have a legally appointed agent who will be able to agree this

Considering other options

A Deferred Payment agreement is only one way you can pay for your residential or nursing care and will suit some people’s circumstances better than others.

Other options include:

• renting out your property, which could give you enough income to cover the full cost of your care. There are advantages to this as you will not accrue a debt, or be liable for interest and administrative charges, and your property will be occupied. Your tenant will be paying utilities and council tax which will reduce your outgoings.
• considering various equity release products which may be suitable for your personal circumstances.
• paying the full cost from your care from your available income savings/assets, or a family member may choose to pay some or all of this for you.

You are advised to seek independent financial and legal advice to help you decide which course of action will be financially better for you. To help you find a local or national organisation, search the support service directory.

Charging interest

The loan will have interest charged on it in the same way a normal loan would be charged on money borrowed from a bank. The maximum interest rate that will be charged is fixed by the government. Currently the rate charged is 4.65% and is based on the cost of government borrowing and will change on 1 January and 1 July every year. This interest will be compounded on a four-weekly basis.

The interest on any outstanding balance will apply from the day you enter into the Deferred Payments Scheme.

You will receive regular six-monthly statements advising you how your charge is being calculated and what the outstanding sum on your deferred payment account is.

Your agreement with Redbridge Council

If you decide to use the deferred payments scheme, you enter into a legal agreement with the Council by signing an agreement document. We then place what is called a ‘legal charge’ on your property to safeguard the loan. You will be charged for this expense.

The agreement covers both our responsibilities and your responsibilities. One of your responsibilities is to make sure that your home is insured and maintained. If you incur expenses in maintaining your home while you are in residential or nursing care, these will be allowed for in the amount that you are assessed as contributing each week from your capital (savings) and income.

You can end the agreement at any time (for example if you sell your home) and the loan then becomes payable immediately. Otherwise the agreement ends on your death and the loan becomes payable 90 days later.

Redbridge Council cannot cancel the agreement without your consent.

Advantages of using a Deferred Payments Agreement

If there is an existing agreement for a third party ‘top up’, where a family member or other person puts additional money towards your placement and you decided to take advantage of the deferred payments scheme, you can add the cost of the ‘top up’ payments to your Deferred Payments Scheme loan, if the council agrees that there is enough equity in your home.

The government’s rules say that ‘top ups’ for people not using a Deferred Payment Scheme currently have to be paid for by somebody else - for example, a member of their family – so a Deferred Payment Agreement is currently the only way of paying the top up yourself without depending on a third party.

You are advised to seek independent financial and legal advice to help you decide which course of action will be financially better for you.

Costs associated with deferred payments

There are costs, which are currently £1,016.63 to set up the agreement, £193.43 annual administrative cost and £191.06 when the agreement is redeemed.

The make-up of these charges will be shown in your legal agreement if you decide to proceed.

While in the agreement, you will also need to:

• have a responsible person willing and able to ensure that necessary maintenance is carried out on the property to retain its value, as you are liable for any such expenses
• insure your property at your expense
• Redbridge Council will require proof to be shown of maintenance and insurance on a regular basis
• pay any client contribution in a timely and regular manner; if you fail to pay the client contribution on a regular basis we reserve the right to add this debt to the loan amount

There can be no other beneficial interests on the property, for example outstanding mortgages or equity release schemes, unless this is approved by the Redbridge Council.

Please note acceptance of any application under a deferred payment agreement is subject to you meeting the criteria for entering the scheme, and for Redbridge Council to be able to obtain security in your property.

Independent financial and legal advice

To find organisations that provide independent financial and legal advice, search the support service directory.