If you have 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, the deferred payments scheme is designed to help.
The scheme offers you a loan, using your home as security. It doesn’t work in exactly the same way as a conventional loan as we do not give you a fixed sum of money when you join the scheme, but pay an agreed part of your weekly care and support bill for as long as is necessary.
How it works
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. We pay the part of your weekly charge that you can’t afford until your home is sold. The part we pay is your ‘deferred payment’.
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. This will lower the weekly payments we make, and reduce the eventual deferred payment debt.
Charging interest
The loan will have interest charged on it in the same way as money borrowed from a bank. The interest rate that will be charged is fixed by the government. Currently, the rate to be charged is based on the cost of government borrowing. It will change on 1 January and 1 July every year.
This interest will be compounded and apply from the day you enter into the deferred payment scheme.
We will send you a statement every six months showing how your charge is being calculated and what the outstanding amount on your deferred payment account is.
Your agreement with us
If you decide to use the deferred payments scheme, you enter into an agreement with the council by signing an agreement document. The council then places what is called a ‘legal charge’ on your property to safeguard the loan. You will be charged for this expense.
The agreement covers the responsibilities of the council as well as your responsibilities. You are responsible for making sure that your home is insured and maintained. If you incur expenses in maintaining your home while you are in residential or nursing care, we will take these costs off the amount that you will be contributing from your capital and income each week. You will need to show us proof of your expenses so that we can do this.
You can end the agreement at any time and the loan then becomes payable immediately. The agreement will automatically end if you sell the property and the loan will be payable at that point. Otherwise, the agreement ends on your death and the loan becomes payable 90 days later. We cannot cancel the agreement without your consent.
You should take independent financial and legal advice to help you decide which course of action will be financially better for you and consider the effect on any benefits you receive such as:
- pension credit
- Attendance Allowance
- Disability Living Allowance
Advantages of using the deferred payments scheme
You do not need to sell your home in your lifetime. The government’s rules say that ‘top-ups’ for people not using the deferred payments scheme have to be paid for by somebody else – for example, a member of their family. A ‘top up’ is the difference between the standard fees for care homes that we will pay towards and the additional costs of a more expensive care home.
However, if you enter into a deferred payment you can add the cost of the ‘top-up’ payments to your deferred payments scheme loan if we agree that there is enough equity in your home.
Costs of the deferred payments scheme
There are costs when you are on the scheme, including:
- legal costs
- a Land Registry charge
- land search fees
- administration charges
We will write to you separately about these charges when you take out an agreement.
Other options
You may choose to rent out your property which could give you enough income to cover the full cost of your care. There are advantages to this such as:
- you will not accrue a debt
- you will not be liable for interest and administrative charges
- your property will be occupied
- your tenant will be paying utilities and council tax which will reduce your outgoings
There are various equity release products which may be suitable for your personal circumstances.
You may choose to pay the full cost of your care from your available income and assets or a family member may choose to pay some or all of this for you. You should take independent financial and legal advice to help you decide which course of action will be financially better for you.