Deferred payment agreements policy

This policy covers the Universal Deferred Payment Agreement Scheme and the City of York Council Deferred Payment Agreement Scheme.

Introduction
Eligibility criteria
Interest charge and fees
12-week property disregard
Universal Deferred Payment Agreement Scheme
City of York Council Deferred Payment Agreement Scheme
Refusal of a deferred payment agreement or further lending against an existing agreement
How much can be deferred - 'upper limit'
Termination of deferred payment agreements

Introduction

A deferred payment agreement is a legally binding agreement under which we will lend money to customers to allow them to defer or delay paying some or all the cost of their care and support until a later date. Deferring payment can help people to delay the need to sell their home and provides peace of mind during a time that can be challenging (or even a crisis point) for them as they make the transition into care.

Deferred payment agreements will ultimately cease or be terminated due to factors described later in this policy. The amount deferred will become due for repayment at a point in time.

People can choose to use deferred payment agreements as short-term 'bridging loans' while they sell their property, or as longer-term loans to delay or avoid selling their home during their lifetime.

We offer deferred payment agreements through two schemes:

Universal Deferred Payment Agreement Scheme
City of York Council Deferred Payment Agreement Scheme

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Eligibility criteria

We must offer a deferred payment agreement under the Universal Deferred Payment Agreement Scheme to people who meet the following eligibility criteria:

Anyone whose needs are to be met by the provision of care in a care home. This is determined when someone is assessed as having eligible needs which the local authority decides should be met through a care home placement. This should comply with choice of accommodation regulations and care and support planning guidance and so take reasonable account of a customer’s preferences.
People have less than (or equal to) the higher capital limit excluding the value of their home (i.e. in savings and other non-housing assets and housing assets other than their main or only home).
Their home is not otherwise occupied by a spouse, civil partner or dependent relative as defined in regulations on charging for care and support and is therefore disregarded from the financial eligibility and assessment process.
They can provide adequate security in the form of a first legal mortgage charge over their property.

We will seek to offer a deferred payment agreement under the City of York Council Deferred Payment Agreement Scheme to people who are unable to meet the eligibility criteria for the Universal Deferred Payment Agreement Scheme. The City of York Council Scheme is intended to offer greater flexibility regarding security arrangements and requests should be considered on the following basis:

Where meeting care costs would leave someone with very few accessible capital assets (this might include assets which cannot quickly or easily be liquidated or converted into cash such as capital or the main home being abroad);
Where someone would like to use the wealth tied up in their home to fund more than their core care costs and purchase affordable and sustainable top-ups.
Whether someone has any other accessible means to help them meet the cost of their care and support (for example, valuable assets such as artwork, jewellery, etc).
Where a person is narrowly ineligible for the Universal Deferred Payment Agreement Scheme, because they have slightly more than the higher capital limit, and the likelihood is that the customer will reach this threshold soon.
That we retain discretion over the acceptance of security and the level of loans to be offered under the City of York Council Scheme.

We will undertake an assessment to determine the level of income and capital the customer has and is able to contribute towards their care and support costs.

We will not offer a Deferred Payment where a customer has land or property assets in addition to their main or only home.

We have discretion to consider requests for deferred payment agreements under the City of York Council Scheme for customers that have care and support provided in supported living accommodation. This discretion can only be exercised where the customer intends to retain their former home and pay the associated care and accommodation rental costs from their deferred payment. Deferred payment agreements cannot be entered into to finance mortgage payments on supported living accommodation. For this policy, supported living accommodation means accommodation, which is not a care home, but is intended for occupation by adults, under licence or tenancy agreement, and where personal care is available if required.

We may be notified of price increases for care and accommodation from time to time. Where a customer is using a deferred payment to fund all of their care and support costs (with the exception of their contribution if applicable), the amount deferred will increase by the amount required by the care provider. We will notify customers as soon as possible of any changes to the amount being deferred.

Where a customer is using a deferred payment to fund a top-up, then we may incur part of any price increase within the contracted rate paid to the provider. Should the increase be greater than the local authority is willing to pay, then the customer will be responsible for the additional cost. We will notify customers as soon as possible of any changes to the amount being deferred.

In all cases we will apply a sustainability threshold of 32 months, when determining the affordability of care and support through a deferred payment agreement. This means that the amount of equity offered to determine the ‘upper limit’ must cover care costs for at least 32 months (139 weeks). This threshold is based on local data covering the average length of stays in care homes in York. This threshold will be reviewed from time to time, with the prevailing threshold being used at the start of, and throughout the lifetime of a deferred payment agreement.

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Interest charge and fees

The Care Act 2014 gives local authorities the power to charge interest on deferred payment agreements at a rate not exceeding the national maximum interest rate, set by central government. This interest rate will be reviewed every 6 months (on 1 January and 1 July) and charged on a compound basis.

The applicable rate charged by us for both deferred payment agreement schemes will be published on our website as they are updated (see Adult care and support fees, charges, allowances and rates).

Interest will continue to accrue on any loan until such time as the amount due is repaid in full. This includes where the maximum deferred payment agreement limit has been reached, or where the customer has died. Customers can make arrangements to pay the interest as it becomes due, rather than add it to the accruing debt.

The rate of interest can go up as well as down during the lifetime of a deferred payment agreement.

The Care Act 2014 provides local authorities with the power to charge an administration fee to cover all administration, legal and valuation costs incurred by offering and maintaining deferred payment agreements. Our administration fees are published on our website (see Adult care and support fees, charges, allowances and rates) and will be charged at the outset of the loan for setting up the agreement in all circumstances. Additional fees will be charged annually, upon cessation and termination of the agreement. Fees can be added to the loan and will be liable for compounded interest charges. Alternatively, customers may choose to pay administration fees in full.

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12-week property disregard

The value of a customer’s main or only home will be disregarded for a maximum of 12 weeks, when the customer has savings and non-housing assets below or equal to the higher capital limit. This disregard can, however, only be applied in the following circumstances:

when a customer first enters a care home as a permanent resident.
when a property disregard other than the 12 weeks property disregard unexpectedly ends because the qualifying relative has died or moved into a care home.

Where a customer drops below the capital limit during the 12 weeks, we will determine any eligibility for the property to be disregarded for the remainder of the disregard period.

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Universal Deferred Payment Agreement Scheme

We have a statutory duty to offer a deferred payment agreement where a customer meets the eligibility criteria for the national scheme. The customer will be provided with details of the scheme as part of the care and support planning service.

Where a customer requests a deferred payment agreement, we will aim to have the agreement in place within the 12-week disregard period (where applicable) or within 12 weeks of the customer requesting a deferred payment agreement where the disregard is not applicable.

The deferred payment agreement will clearly set out the following information:

terms to explain how the interest will be calculated and that it will be compounded if it is to be added to the deferred amount.
information as to administrative costs for arranging a deferred payment agreement.
terms to explain how the customer may exercise his or her right to terminate the agreement, (including notification to the council where the customer decides to sell the property) which should explain the process for and consequences of terminating the agreement and specify what notice should be given.
terms to explain the circumstances in which we might refuse to defer further fees (either when it is required to stop deferring, for example if the person has already deferred up to their ‘equity limit’, or when it has powers to stop deferring, such as when a person qualifies for local authority support in paying for their care.
that the local authority will secure their debt by placing a legal (Land Registry) charge against the property.
a term requiring the local authority to provide the person with a written statement every six months and within 28 days of request by the person, setting out how much the person owes to the authority and the cost to them of repaying the debt.
a term which explains that the maximum amount which may be deferred is the equity limit and that this is likely to vary over time (subject to the re-valuation of security and/or changes in the cost of care and support).
a term which requires the local authority to give the adult 30 days written notice of the date on which they are likely to reach the equity limit.
a term which requires the adult to obtain the consent of the local authority for any person to occupy the property.
an explanation that we will stop deferring our charges and making advances under a loan agreement if the person no longer receives care and support in a care home or supported living accommodation or if the local authority no longer considers that the adult’s needs should be met in such accommodation.
a term that where a property is unregistered with the Land Registry, the customer must first register the property.
the means of redress if either party feels that the other has broken the terms of the agreement.
an explanation of the consequences of taking out a deferred payment agreement, for the person and their property, and including anyone who may reside at the property.
what the deferred loan can be spent on.
the process by which we can require a re-valuation of the security.
the customer's responsibilities regarding the maintenance and insurance of their home, and the requirement to advise the council of any change of circumstance to their income (for example, should the property be rented out), or changes to their care requirements.
the process for requesting a variation to the agreement.
who should be contacted in the event of the customer's death to assist the local authority in reclaiming the amount deferred - this would normally be the executor identified in the customer's will.
that the local authority is indemnified against circumstances when someone might gain a beneficial interest in the property after the agreement has been made, and the customer's responsibility to notify the council if this is the case.
that the customer has taken relevant independent financial advice, understands fully the agreement they are entering into and has had the opportunity to ask questions, which have been answered in full, and that the customer is entering into the agreement of their own free will.

In addition to the deferred payment agreement, we have a statutory duty to provide information and advice regarding deferred payment agreements in advance of the customer entering such an agreement. Information will be provided to customers when they are considering whether to enter into a deferred payment agreement.

Customers must retain the Personal Expenditure Allowance (PEA) as a minimum each week. Customers that have entered into a Deferred Payment Agreement are also permitted to retain the Disposable Income Allowance (DIA), to maintain and insure their properties. This amount may vary over time and the current level is available on our website (see Adult care and support fees, charges, allowances and rates). Retention of income up to the DIA is determined by the customer.

Customers choosing to rent out their property can retain a maximum of 20% of the net rental income (i.e. after payment of letting/agency fees) to maintain the property to a high standard. Customers can choose how much they wish to retain between 0% and 20%. All remaining rental income will be included within the funding application to determine the customer's income contribution towards the cost of care and support.

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City of York Council Deferred Payment Agreement Scheme

We have the discretion to offer a deferred payment agreement scheme to customers that wish to enter into a deferred payment agreement but do not meet the criteria of the Universal Deferred Payment Agreement Scheme.

We will consider all reasonable requests for customers to use their assets to defer care and support costs where adequate security can be provided. In all cases, security must be in place before any sums can be deferred.

Adequate security may take the form of, but is not limited to:

second or other legal mortgage charge over the main or only home where there is sufficient equity after calculating the interest and amount due for repayment against preferred charges.
legal charge over land registered to the customer (unregistered land must be registered at the land registry before any agreement can be entered into);
a legal charge over land upon which an uninsurable property is situated, where the land has a sufficiently high value.
a loan being guaranteed by a third party subject to the third party offering appropriate security, such as a legal charge on their property.
a solicitor’s letter of undertaking
a legal agreement being in place for loan proceeds to be repaid from the sale of a valuable object or jewellery, subject to adequate loss insurance being in place.
a legal agreement being in place to repay the amount from the proceeds of a life insurance policy

The deferred payment agreement will set out all the information listed previously in this policy.

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Refusal of a deferred payment agreement or further lending against an existing agreement

The Care Act 2014 provides local authorities with the power to refuse deferred payment agreements. This provision is intended to provide local authorities with a reasonable safeguard against default or non-repayment of debt. We can refuse to enter into a deferred payment agreement in the following circumstances:

the security offered is a property over which the local authority is unable to secure a legal mortgage charge.
where a customer requests a larger amount than they can provide security for (a deferred payment agreement must still be offered for the maximum sum the local authority can defer up to);
where a legal charge can be taken, however the property or asset is uninsurable.
where a customer does not agree to the terms and conditions of the agreement, for example a requirement to insure and maintain the property.

Where a deferred payment agreement is already in place, we have discretion whether it allows additional money to be deferred where the ‘upper limit’ of deferral has been reached. All deferred payment agreements will be reviewed at the point where the amount deferred is 70% of the value of the security. Where the deferred payment continues to meet the customer’s needs, the following circumstances will be taken into consideration when making the decision for extra lending are:

whether the current value of the asset is greater than at the start of the deferment and as such, the additional equity could be used to defer additional care and support fees (where the asset value is less, then no additional deferment will be allowed);
where a spouse or dependent relative has moved into the property after the agreement was made, meaning that the customer is eligible for local authority support and the deferred payment agreement should cease;
where a relative who was living in the property at the time of the agreement subsequently becomes a dependent relative, then further deferrals may be refused beyond this point.

Equity Release: customers with properties subject to existing mortgage charges or equity release must seek approval from their loan provider in advance of us being able to offer a Deferred Payment. It is unusual for equity release providers to agree to Deferred Payments due to the nature of the Equity Release Agreement: these often must be repaid from the sale of the property when the property becomes vacant when the customer enters permanent care. In such cases, we will not be able to provide any additional borrowing against any remaining equity within the property, however the remaining equity will be deemed as an asset and will likely mean that we are unable to provide any financial support.

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How much can be deferred - ‘upper limit’

The Care Act 2014 specifies how much local authorities must defer against the value of property or assets. In all cases the following calculation will determine the ‘upper limit’:

Capital + (Property/Asset Value - 10%) - £14250 = Upper Limit

The Care Act 2014 requires that the property/assets offered as security will be revalued on an annual basis; therefore the ‘upper limit’ may change from time to time. As such, the ‘upper limit’ may increase or decrease accordingly. Customers will be advised of the re-valuation and change to the ‘upper limit’ on an annual basis.

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Termination of deferred payment agreements

A deferred payment agreement can be terminated in three ways:

voluntarily, by the customer or their representative, by repaying the full amount due during the customer's lifetime. In this case we will relinquish our legal charge on the security;
by repayment from the sale of the property or item on which the loan is secured. In this case we will require notification early in the sale process and will arrange for the charge to be relinquished as part of the completion of the sale;
upon the death of the customer. Interest will continue to accrue until the debt is repaid in full.

Where the agreement terminates upon the death of the customer, we will contact the executor after 14 days to provide a breakdown of the total amount that is deferred and the rate at which interest is accruing. The executor is required by the agreement to take steps to repay the debt within 90 days of the customer's death. This would normally mean that they have started sale proceedings where probate has been granted.

If, after 90 days, the executor appears not to be taking steps towards repayment, we will commence legal proceedings to recover the debt.

Confirmation will be provided in all cases when the amount due has been fully repaid, that the legal charge against the property has been removed (or in cases of other security, that the legal agreement has been ended and the security is free to be disbursed as the customer or their executor sees fit), and all matters relating to the agreement have been concluded.

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Also see

Assessing your needs
Choosing your care and support (including Direct Payments)
Paying for independent living with 24-hour support

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