Understanding Deferred Payment Agreements for Care Home Fees

If you own your home but don't have enough savings to cover care home fees, a Deferred Payment Agreement (DPA) may mean you never have to sell your property in your lifetime. Our guide explains exactly how the scheme works, who qualifies, what it costs, and how to apply.

What Is a Deferred Payment Agreement?

A Deferred Payment Agreement (DPA) is a formal arrangement with your local council that lets you delay paying part of your care home fees. The unpaid amount is secured against your home and repaid with interest when the property is eventually sold.

Introduced under the Care Act 2014, Deferred Payment Agreements exist to prevent people from being forced to sell their home at short notice simply because they need to move into a care home. Your local authority essentially acts as a lender, covering the shortfall between what you can afford from income and savings and the actual weekly cost of your care.

The debt grows over time and interest is charged on the outstanding balance, but it only needs to be repaid when your property is sold, or from your estate after you pass away. Importantly, you are not required to sell your home during your lifetime unless you choose to.

Understanding how a DPA sits alongside your other options is a useful first step. Our broader guide to paying for care home fees gives helpful context on all the routes available to families.

Who Is Eligible for a Deferred Payment Agreement?

Your local council is required by law to offer you a DPA if you meet all of the following conditions:

1. You are a permanent resident in a registered care home not receiving short-term or respite care.
2. Your home is not currently disregarded from the financial assessment, for example, a spouse or qualifying dependent does not live there.
3. Your savings and assets (excluding your property) are at or below the capital threshold, currently £23,250 in England.
4. Your property is registered with the Land Registry and is suitable security for a legal charge.
5. You have the mental capacity to agree to the arrangement, or someone holds a valid Power of Attorney and can sign on your behalf.

Even if you don't meet all of the above criteria, councils have discretion to offer a DPA in individual circumstances. It is always worth asking.

"Families often come to us worried they'll have to sell Mum or Dad's home within weeks of moving into care. A Deferred Payment Agreement genuinely changes that picture as it takes the pressure away and gives everyone the time to make the right decision rather than a rushed one."

What About Jointly Owned Property?

If you own your home jointly with a spouse, partner, or another person, the DPA can still apply, but all co-owners must sign the agreement and consent to a legal charge being placed on the property. Joint owners must also agree not to object to a future sale for the purpose of repaying the deferred debt.

What If My Spouse or Partner Still Lives in the Property?

If your spouse, civil partner, or a qualifying dependent continues to live in your home, the council will typically disregard the value of the property in the financial assessment entirely meaning your home would not count as a capital asset in the first place. Our article on protecting your home and assets as a spouse explores this in more detail.

How Much Can You Defer?

The maximum amount you can defer is calculated to ensure there is always enough equity in the property to repay the debt. The standard formula is:

Maximum deferred amount = (Property value × 90%) − £14,250

The 10% reduction provides a buffer for legal and administration costs. The £14,250 figure ensures a minimum level of remaining equity is preserved.

For example, if your home is valued at £250,000, the maximum you could defer would be approximately £210,750 (£225,000 minus £14,250). Any existing mortgage balance would further reduce this figure.

Your council will commission a professional valuation of your property before agreeing the terms. You are entitled to obtain an independent valuation alongside this if you wish.

What Does a Deferred Payment Agreement Actually Cost?

Interest

The government sets a maximum interest rate that councils may charge, reviewed every six months on 1 January and 1 July. The current rate for January to June 2025 is 4.25% per year. Interest accrues daily on the outstanding balance.

You have the option to pay the interest charges as they arise, keeping the debt from growing - or to add them to the deferred balance. Adding interest to the debt reduces your outgoings now but means a larger sum will eventually be repayable.

Period

Annual Interest Rate

January – June 2025

4.25%

July – December 2024

4.05%

January – June 2024

4.65%

July – December 2023

3.43%

January – June 2023

3.18%

Administration and Set-Up Fees

Councils charge a one-off administration fee to cover the cost of a property valuation and the legal work to register the charge at the Land Registry. Fees vary by council but commonly range between £500 and £750. You will be given the exact figure before you sign anything.

Ongoing Property Costs

While the DPA is in place, you remain responsible for maintaining your property, keeping it insured and in good repair. These costs are expected to come from your disposable income allowance, which allows you to keep up to £144 per week from your income for personal and property expenses.

How Does Repayment Work?

The deferred debt of accumulated care fees plus interest, becomes repayable in one of the following circumstances:

• You sell your home during your lifetime - the proceeds are used to repay the debt. Any surplus belongs to you.
• You pass away - the executor of your estate has 90 days from the date of death to arrange repayment, either from the sale of the property or from other estate assets.
• You choose to end the DPA early - for instance, if you come into funds from another source such as an inheritance. You can repay at any time without penalty.

It is entirely possible to remain in the DPA for the full duration of your time in care, with repayment only occurring through your estate after you pass away. Councils cannot end the arrangement without your consent during your lifetime.

"One family told us the DPA had taken the entire financial burden off their shoulders. They could focus on visiting and spending quality time together, rather than worrying about whether the house would have to be sold in a hurry."

Can You Rent Out Your Home While on a DPA?

Yes. Renting out your property is permitted and can be an effective way to reduce the amount you need to defer each week. A portion of the rental income is expected to go towards your weekly care fees, reducing the amount added to the deferred balance. Tenancies should typically be on assured shorthold agreements with an initial term of no more than six months, and you must keep the property properly maintained and insured, informing your insurer that it is now occupied by a tenant. Renting your property while in care can meaningfully slow the growth of your deferred debt, preserving more equity for your estate.

How Do You Apply for a Deferred Payment Agreement?

The process typically follows these steps:

1. Request a care and support assessment from your local council. A financial assessment (means test) will be completed as part of this to determine your contribution towards care costs.
2. Express your interest in a DPA to your financial assessment officer. If you appear to meet the criteria, they will send you a formal application form.
3. The council arranges a professional property valuation. You may obtain an independent valuation alongside this.
4. The council places a legal charge on your property at the Land Registry, securing the deferred debt.
5. You or the person holding Power of Attorney sign the Deferred Payment Agreement.
6. Fee payments begin under the agreed terms. The council issues statements every six months showing the current balance, accrued interest, and remaining equity.

The process typically takes around 8 to 12 weeks from application to the agreement being in place. You will be invoiced for the full cost of care in the interim, so it is advisable to start the process as early as possible after moving into a care home.

Before signing, it is strongly recommended that you take independent legal and financial advice, particularly if your property is jointly owned or if you have an existing mortgage.

Alternatives to a Deferred Payment Agreement

A DPA is not the only option if your capital is tied up in your home. It is worth understanding the full range before committing:

• Equity release - a commercial product allowing you to access a lump sum from the value of your home without selling it. Unlike a DPA, this is a market product with variable terms and providers. Independent financial advice is essential.
• Renting your property - rental income can reduce or even eliminate the need to defer fees at all.
• Family contributions - a family member may choose to contribute towards care fees directly, reducing what accrues as deferred debt.
• NHS Continuing Healthcare - if your needs are primarily health-related, you may qualify for fully-funded NHS care. Our guide to NHS Continuing Healthcare explains the eligibility criteria.

It is also worth checking whether you are entitled to any benefits as a self-funder, including Attendance Allowance, which is not means-tested and can make a meaningful difference to your weekly budget.

Important Warnings: What to Avoid

Deliberate Deprivation of Assets

Some families consider transferring the family home into someone else's name before moving into care, hoping to avoid care fees altogether. This is known as deliberate deprivation of assets and councils are permitted and required to investigate. If found, the council can treat you as still owning the asset and charge you accordingly. Our article on deprivation of assets explains where the legal boundaries lie.

The Seven-Year Rule

Contrary to common belief, there is no automatic protection from care costs simply because you transferred assets more than seven years before needing care. The seven-year rule is frequently misunderstood, it does not apply to care funding in the same way it does to inheritance tax planning.

What Happens If Your Funds Run Out?

If your savings are spent down during your time in care and you can no longer self-fund, your council must step in and arrange your care going forward. Our guide on what happens when self-funding runs out explains your rights and the transition process.

Frequently Asked Questions

Does a Deferred Payment Agreement affect my benefits? Entering into a DPA can affect means-tested benefits, as it changes how your capital position is assessed. You should seek independent financial advice before signing. Attendance Allowance is unaffected, as it is not means-tested.

Can I end a Deferred Payment Agreement early? Yes. You can repay the deferred debt at any time during your lifetime - for instance, if you receive an inheritance or decide to sell the property voluntarily. The council cannot end the agreement without your consent while you are alive.

What happens to the DPA if I move care homes? The DPA is linked to you as an individual, not to a specific care home. If you move to a different registered care home, the agreement can continue under the new fee arrangement, subject to the council's approval and a review of the outstanding balance against available equity.

Is a Deferred Payment Agreement the same as equity release? No. A DPA is a statutory scheme administered by your local council and secured at the Land Registry. Equity release is a private financial product with different terms, providers, and regulatory frameworks. Both should be properly evaluated with independent advice before any decision is made.

Can I get a Deferred Payment Agreement in Wales? Yes, although the rules in Wales are governed by the Social Services and Well-being (Wales) Act 2014 rather than the Care Act 2014. The core principles are similar, but thresholds and procedures may differ. Our Wales care funding guide covers the key differences.

What if I have a mortgage on my home? An existing mortgage does not automatically disqualify you, but the outstanding balance is deducted from the property value when calculating your maximum deferral amount. You will also need your mortgage lender's consent for a DPA charge to be registered alongside their existing charge.

Talk to the Ashberry Team About Funding Your Care

At Ashberry Care Homes, we understand that understanding care home fees can feel overwhelming, particularly when a move into care is happening quickly or under difficult circumstances. Our team can help signpost you to the right resources and support you in asking the right questions of your local council.

We offer care across our homes in Herefordshire, Gloucestershire, Wales, Cheshire, Surrey, and Wolverhampton, and we are always happy to talk through your situation in confidence.

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