Deferred payment agreements for care fees: how interest and the property disregard interact

A deferred payment agreement is an arrangement with the local authority under which care-home fees are not paid as they fall due but build up as a debt secured on the person’s home, to be repaid later. This page sets out how the scheme works in England, under the Care and Support (Deferred Payment) Regulations 2014 and chapter 9 of the Care and Support statutory guidance. Scotland, Wales and Northern Ireland have their own rules, which this page does not cover. How the home is treated in the means test, including the disregards, is covered in your home and care fees; this page picks up where that one leaves off.

The guidance is plain about what the scheme is: “the payment for care and support is deferred and not ‘written off’” (para 9.4). It takes two forms (para 9.10). In the traditional type, the council pays the care home and defers the charges due to it. In the loan type, the person pays the care provider and the council lends them the cost in instalments.

Who must be offered one

Regulation 2 requires the council to enter into an agreement where all of the following hold: the council is meeting, or would meet, the person’s care needs (normally because they live in its area); the person’s needs are to be met in a care home (whether the council arranges the care or the person arranges it themselves); they have an interest in a property that is their main or only home; the value of that home has not been disregarded in the financial assessment; their capital less the value of the home does not exceed £23,250; the council can take adequate security, which for a required agreement means a charge by way of legal mortgage capable of registration as a first legal charge (reg 4); and the person agrees to the terms. The £23,250 is written into the regulation itself; it currently matches the upper capital limit of £23,250 in the charging rules.

Outside those conditions the council has a discretion (reg 3; para 9.8), for example where someone has slightly more than the £23,250 threshold, and it may also agree to defer where the care is in supported living accommodation (para 9.9). Even where the conditions are met, the guidance lets a council refuse where it cannot secure a first charge, where the person seeks a top-up, or where they do not accept the terms, such as a requirement to insure and maintain the property (para 9.16).

How the 12-week disregard hands over to the agreement

When someone moves permanently into a care home, the value of their home is disregarded for the first 12 weeks, beginning with the day they first move in (CSCAR Regs 2014 Sch 2 para 2). During those weeks the home is not counted, so the regulation 2 condition that its value has not been disregarded is not yet met. The guidance ties the two periods together:

Paragraph 9.78 repeats the aim: the agreement should be finalised by the end of the 12-week disregard where it applies. Take a care-home resident in 2026/27 with a home worth £250,000 and £20,000 of other capital, no one else living in the home, and no debt secured on it:

For the first 12 weeks the resident is assessed on £20,000 alone, between the limits, with tariff income counted alongside their income. From week 13 the home counts at its value less 10% for the expenses of selling it (reg 20), and they are £221,750 above the upper limit. From that week they are assessed as meeting the full cost, and it is also the point at which the regulation 2 conditions on the home and on other capital are met: the home is no longer disregarded and the other capital is within £23,250. The capital limits and the tariff are explained in the care means test and capital limits.

The disregard can also return after an agreement is in place. If a spouse or dependent relative moves into the home, or a relative already living there becomes a dependent relative, the home can become disregarded and the person may then qualify for council support. The council may then stop deferring further amounts, but the guidance says it “cannot demand repayment in these circumstances” (paras 9.18 and 9.20(d)); the amount already deferred stays secured on the home and is repaid on the usual terms.

How much can be deferred: the equity limit

The total that can be deferred, including interest and administration charges added to the debt, must not exceed the equity limit (reg 5(3)). Where the security is property, the limit is 90% of its current market value, less £14,250 and less any debt secured on it that ranks ahead of the council’s charge (reg 5(5)). The £14,250 is written into the regulation; it currently matches the lower capital limit of £14,250. The guidance’s own example:

The limit moves with the value of the home. The guidance asks councils to revalue the security once the amount deferred reaches 50% of its value, and periodically after that (para 9.68), and to review the arrangement with the person as the amount deferred approaches 70% (para 9.43). The agreement must require the council to give 30 days’ written notice of the date the equity limit is likely to be reached (reg 11(1)(e)). Once it is reached, the council stops deferring further care costs (para 9.22).

The amount deferred each week is the care cost less any contribution the council requires from income. The council may require a contribution from weekly income above £144, and the person may keep up to that £144, the “disposable income allowance” (reg 6; para 9.48).

Interest: how the maximum rate is set

A council does not have to charge interest, but it may, provided it tells the person before the agreement that it will and at what rate (reg 9(1)). The rate is capped:

The relevant periods run from 1 January to 30 June and from 1 July to 31 December (reg 9(5)), so the national maximum is reset twice a year. The guidance gives the arithmetic as an illustration only: a gilt rate of 1% plus 0.15% gives a maximum of 1.15% (para 9.71). A council may charge less than the maximum, but it must charge the same rate on all its deferred payment agreements, and a change in the national maximum applies to existing agreements unless the council already charges less (paras 9.70–9.71). This page does not state a current rate: the regulation sets the maximum by formula, and the council must tell the person the rate it charges, and when it is likely to change, before the agreement is made (para 9.73).

Interest added to the debt compounds (reg 11(1)(f); para 9.74). Three points follow for how interest meets the disregard and the equity limit:

It runs only on what is deferred. Interest is charged on the deferred amount and anything treated in the same way (reg 9(1)). During the 12-week disregard the home is not counted, and the guidance aims for the agreement to start from week 13, so the debt, and interest on it, builds up from there.

It uses up the equity limit. Interest added to the debt counts towards the limit alongside the care costs (reg 5(3); para 9.40), so the higher the rate, the sooner the limit is reached and deferral of care costs stops.

It does not stop at the limit, or at death. Interest and administration charges may continue to be added after the equity limit is reached (reg 5(7); para 9.45), and interest accrues after death until the amount due is repaid (para 9.107). If the council has to recover the debt through the County Court, it may charge the higher County Court rate (para 9.75).

Administration charges

A council may also charge its administration costs, either the actual costs of the agreement or an average cost, plus specific items such as valuing the property and registering and removing the charge (reg 10(3) and (4)). Before the agreement it must give an estimate of the set-up and registration charges and an indication of its current charges (reg 10(5)). The charges must not exceed the council’s actual costs, and councils should keep a public list of them (paras 9.76–9.77). They can be added to the debt, in which case they count towards the equity limit, unless the person asks to pay them separately (reg 10(2)). The council must send a statement every six months, and within 28 days of a request, showing the amount needed to end the agreement and the interest and charges accrued (reg 11(1)(d); para 9.89).

What happens on sale or death

The person can end the agreement at any time by giving reasonable written notice and paying what is due (reg 8). Otherwise the regulations set when repayment falls due:

On a sale, the amount due is paid from the proceeds and the council releases its charge (para 9.101). On death, the executor decides how the amount is paid: from the estate, usually through the sale of the home, or by a third party, and the council must accept another means of payment that covers the full amount (paras 9.103–9.104). The guidance asks councils to wait at least two weeks after the death before approaching the executor with a breakdown (para 9.105). If, after the 90 days, active steps to repay are not being taken, the council may start legal proceedings (para 9.108).

What the care checker does with a deferred payment agreement

The long-term care entitlement checker applies the 12-week disregard and, given an admission date, dates the day the window ends. Where a care-home user says they are considering a deferred payment agreement, it adds a line with the national maximum interest rate held in its configuration, marked as the rate at verification. It does not model the deferred balance, compound interest, the equity limit or repayment. Other assets are covered in investment bonds and care-home fees. The checker states a funding position; it does not advise.

Care and Support (Deferred Payment) Regulations 2014 regs 2–11 · Care and Support (Charging and Assessment of Resources) Regulations 2014 reg 20 and Sch 2 para 2 · Care and Support statutory guidance chapter 9