Using a deferred payment agreement to fund care home fees
Many people use a deferred payment agreement to release equity tied up in their home and fund care home fees. Maria Richards, Partner in Coodes Solicitors’ Residential Property team outlines the practicalities and considerations.
What is a deferred payment agreement?
From April 2020, everyone receiving care is entitled to a £72,000 cap on costs. Some care home residents are entitled to full funding but those who are not have to pay the weekly fees themselves. The assets that the local authority takes into account for assessing funding are largely tied up as equity in a home and therefore not readily available pay the care home fees until the property is sold.
The local authority will pay the care home fees on the basis that they will be repaid once the property has been sold. The amount available will be based on the weekly care charge and will be limited to 90% of the value of the property minus £14,250.
If there is already a mortgage on the property, the lender will need to consent to the second charge mortgage. If the amount you owe exceeds the equity limit, the local authority will only increase this limit if the value of your property increases. Otherwise you will continue to be responsible for the additional payments after this. Interest is usually payable.
The local authority can advise you as to whether or not you are eligible and enquiries should be made direct to them.
What are the legal implications of a Deferred Payment Agreement?
Once you have received confirmation from the Local Authority that you are eligible for the Deferred Payment Agreement, the team at Coodes Solicitors can assist you with the implementation and the legal documentation.
We will discuss with you the terms of the agreement including when any payments must be made and the flexibility to move accommodation should you wish to do so. We will also outline the interest rate payable and any associated administrative costs and explain when the debt has to be repaid, either by a trigger event or if you wish to voluntarily repay the loan. We will also explain your ongoing responsibilities for maintenance and repair.
The local authority will have a charge over the title. In essence, this gives them the same rights that any normal mortgage lender would have in that, if you did not repay the sums when it became due with the interest, they could affect repossession proceedings.
Who can sign the documentation?
A Deferred Payment Agreement is a legal deed so it must be signed by the property owner. However, many people who are going into a care home have lost capacity, perhaps as a result of dementia, so they are no longer able to sign official documentation. In this instance, if a Lasting Power of Attorney is in place, the designated attorney can sign the documentation on their behalf. If no Power of Attorney exists then an order can be obtained from the Court of Protection to appoint a deputy.