Deferred Payment Agreements
What is a Deferred Payment Agreement?
A Deferred Payment Agreement (DPA) is an agreement with the local authority that allows a person with an eligible care need to defer (delay) paying the costs of their care and support until they either sell their home or until their death. It is important to note that this debt is not written off and must be repaid.
Who is eligible?
Local authorities must offer a DPA to people who have local authority-arranged care and also to those who arrange and pay for their own care, provided their eligible needs should be met by care in a care home. The applicant’s property must not be disregarded for charging purposes, i.e. not occupied by a spouse or dependent relative. They must have assets, other than their home, worth less than or equal to the upper capital limit (£23,250 for 2020/21).
Local authorities are now also encouraged to offer the scheme to anyone who would benefit but does not fully satisfy the usual criteria. This might include people whose care is provided in supported living accommodation.
Where a person may lack capacity to request a DPA, their attorneys are able to request one on their behalf if acting under an Enduring or Lasting Power of Attorney.
How it works
A DPA will be secured on the property by way of a first legal charge which will allow the council to recoup the money spent on the person’s care when the property is sold or upon their death.
The property must hold sufficient security (equity) for a first legal charge to be applied to their property by the local authority. This would be done by way of a valuation which may be repeated at future periods during the term of the agreement to ensure that the level of equity can continue to provide for the deferred care costs.
In calculating the maximum amount that can be lent, the Local Authority will typically take the level of equity and make an allowance for future selling costs and further deduction of the lower capital limit, currently £14,250. The balance will be the maximum amount that can be deferred against the property.
The local authority and the person needing care should have a rough idea of their likely care costs as a result of the care planning process. In principle, and depending on the value of the property, people should be able to defer their full care costs, including any top-ups but, at a minimum, must be allowed to defer their ‘core’ care costs.
During the agreement, a person is allowed to keep £144 per week of their income, which includes their standard weekly personal allowance. The balance is designed to cover expenses such as the upkeep and insurance of the property throughout the term of the agreement. The owner can let the property in order to gain a rental income which could help offset the amount needed to pay for care and therefore reduce the level of debt being deferred.
The local authority may refuse to offer a DPA where there is insufficient security with which to pay the debt.
The applicant should be given a copy of their DPA which must give a full explanation of how the deferred payment will work. It must clearly set out the terms and conditions and information on how the interest is calculated, any other costs, their right to terminate the agreement and the circumstances in which the local authority might refuse to defer.
The applicant must be given reasonable time to consider the agreement before deciding.
The Local Authority is allowed to recoup administrative, valuation and legal costs but are not allowed to make a profit from the DPA scheme.
As the DPA scheme is meant to be run on a ‘cost-neutral’ basis, the local authority is also entitled to charge interest on the deferred debt to cover the running of the schemes. The Department of Health sets the maximum interest rate that can be charged, which is based on the cost of Government borrowing plus an additional 0.15%. Currently this maximum is 2.65%. The interest will be stated at the outset of the agreement and reviewed every 1st January and 1st July. Interest accrues on a compound basis.
Local authorities must keep the person regularly informed about their DPA and provide a written statement every six months and within 28 days of request by the person.
They must give the person 30 days’ written notice of the date they are likely to reach the equity limit.
When does it end?
The DPA will stay in place until the death of the applicant or the sale of their property. The Local Authority can also end the agreement if the person no longer remains eligible or if the maximum equity level is reached. Once repaid, the agreement terminates.