The most common fear families face when a parent needs a care home is that the family home will have to be sold immediately. A Deferred Payment Agreement removes that pressure. It is a formal arrangement where the local authority pays your care home fees on your behalf, secured against the value of your property, and you repay the debt when you choose to sell the home or when you die. Every local authority in England must offer a Deferred Payment Agreement to eligible residents. It is not a gift and it is not means-tested in the conventional sense. It is a loan, with interest and fees, that must eventually be repaid. Understanding exactly what it costs, what the risks are, and whether it is the right option for your family is the purpose of this guide.
What is a Deferred Payment Agreement and how does it work?
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A Deferred Payment Agreement (DPA) is a legal loan arrangement between a care home resident and their local authority. It works like this:
- The resident moves into a care home and is assessed as having assets above the £23,250 threshold, but most of those assets are tied up in property rather than accessible savings
- Rather than requiring the property to be sold immediately, the local authority pays the care home fees on the resident's behalf
- The council places a legal charge on the property, similar to a second mortgage
- Interest accrues daily on the outstanding debt at a rate set by the government, reviewed every six months
- The debt is repaid when the resident chooses to sell the property, when the resident ends the agreement voluntarily, or within 90 days of the resident's death
Key distinction: a DPA does not make care free. It delays payment. The resident still contributes income (pension, benefits) toward care costs throughout the agreement. The DPA only covers the gap between that income contribution and the full care home fee. The total debt, including interest and fees, will eventually be recovered from the property.
The current interest rate and what it costs in 2026
The interest rate on Deferred Payment Agreements in England and Wales is set by the government based on gilt market rates plus 0.15 per cent. It is reviewed twice a year on 1 January and 1 July.
Current rate: 4.75% per annum, compounded daily (effective from 1 January 2026 to 30 June 2026).
The rate was previously 5.84% in 2024/25. The current lower rate reflects the broader fall in gilt market rates. However, it can rise again at any future review.
Daily compound interest means the council adds interest to the total debt every single day. The next day's interest is then calculated on that new, higher balance. Over several years in care, this compounding effect can significantly increase the final amount owed.
Worked example: how debt accumulates over time
| Year in care | Weekly care fee | Weekly income contribution | Weekly amount deferred | Approximate total debt at 4.75% compound |
|---|---|---|---|---|
| End of year 1 | £1,100 | £250 | £850 | approx £46,000 |
| End of year 2 | £1,100 | £250 | £850 | approx £96,000 |
| End of year 3 | £1,100 | £250 | £850 | approx £149,000 |
| End of year 5 | £1,100 | £250 | £850 | approx £264,000 |
These figures are illustrative, assume a constant interest rate, and do not include administration fees. The actual debt will vary based on the care home fee, the income contribution assessed, and any changes in interest rates at future reviews.
Who is eligible for a Deferred Payment Agreement?
Local authorities in England must offer a DPA to anyone who meets all of the following criteria:
| Eligibility requirement | Detail |
|---|---|
| Assessed as needing residential care | A care needs assessment by the local authority must have confirmed the need for permanent residential or nursing care |
| Capital below £23,250 excluding the home | The resident's accessible savings and investments, excluding the value of the property, must be below the means test upper threshold (£23,250 in England). The home is excluded from the means test for the first 12 weeks of permanent residential care |
| Own or partly own a property in the UK | The property must be in the UK. Overseas property cannot be used as security. Joint owners must give written consent for the legal charge |
| Sufficient equity in the property | The council will typically only lend against 70 to 80 per cent of the property's value. There must be enough equity to cover anticipated care costs plus interest, selling costs, and a safety buffer |
| Mental capacity or a representative | The resident must have capacity to enter the agreement, or have a legally appointed representative such as an attorney under a registered Lasting Power of Attorney |
| No disqualifying existing charges | If an existing mortgage or equity release scheme is secured against the property, the council may not be able to take a first legal charge. This can disqualify an application or reduce the amount available to borrow |
Councils also have discretion to offer a DPA to residents who do not strictly meet all criteria, for example where savings are slightly above the threshold but expected to fall quickly. Ask your council's financial assessment team whether a discretionary DPA might be available in your case.
The full costs of a Deferred Payment Agreement
Beyond the interest rate, a DPA involves several fees that families often overlook when assessing whether it is financially worthwhile:
| Cost item | Typical range | Notes |
|---|---|---|
| Administration set-up fee | £190 to £725 | Varies significantly by council. Covers internal administration costs. Must be reasonable and not profit-making. |
| Annual administration charge | £95 to £144 per year | Ongoing cost while the agreement is in place. Can be added to the debt rather than paid as charged. |
| Property valuation | £150 to £350 | Required to establish the equity limit. Some councils use their own valuer; others allow an independent estate agent. |
| Legal charge registration | £40 to £910 | Land Registry fee to register the charge against the property. Fee depends on property value. |
| Land search fee | £20 to £125 | Required before the charge can be registered. |
| Termination fee | £150 to £200 | Charged when the agreement ends, whether during the resident's lifetime or after death. |
| Interest (daily compound) | 4.75% per annum until June 2026 | Reviewed every six months. Can increase at future reviews. Applies from the first day the council pays care fees on your behalf. |
| Ongoing property costs | Buildings insurance, maintenance, council tax | The resident remains responsible for maintaining and insuring the property throughout the agreement. Failure to do so can breach the agreement. |
All fees can usually be added to the deferred debt rather than paid as charged, which means they also attract compound interest. The council must publish its fees and they must be transparent and reasonable.
The equity limit: how much the council will lend
The council will not lend against the full market value of the property. It applies an equity limit, typically set at 70 to 80 per cent of the property's current market value. The remaining 20 to 30 per cent serves as a safety buffer covering:
- Estate agent fees and conveyancing costs on eventual sale (typically 2 to 3 per cent of property value)
- Protection against falls in property prices
- Accrued interest that may continue to accumulate until the debt is fully settled after sale
When the outstanding debt approaches the equity limit, the council will review the agreement. At that point, the resident may need to sell the property, find another source of funding, or transition to full local authority funding if accessible savings have also fallen below the threshold by that time.
The risks families must understand before agreeing
A DPA is not always the right choice. These are the real risks that need careful consideration:
Risk 1: The interest rate is variable
The rate is reviewed every six months. It was 5.84% in some periods and is currently 4.75%. There is no guarantee it will stay at this level. If the rate rises significantly over a long stay, the final debt could be considerably larger than projected at the outset.
Risk 2: Compound interest grows faster than many families expect
Interest compounds daily on an ever-growing debt. A five-year stay with fees of £1,100 per week and an income contribution of £250 per week could result in a total debt of over £250,000, including interest and fees. For properties worth less than this, the entire equity could be consumed.
Risk 3: The property must be maintained and insured throughout
The resident remains legally responsible for maintaining the property and keeping it insured at full reinstatement value. If the property falls into disrepair, the council could treat this as a breach of the agreement. This creates a practical challenge when the property is empty for years and no family member is managing it.
Risk 4: Executors have only 90 days after death
When the resident dies, the full balance, including all accrued interest and fees, becomes payable within 90 days. Interest continues to accumulate during this period. If the property cannot be sold within 90 days, or if probate is delayed, the council can pursue legal proceedings to recover the debt. Executors should be aware of this timeline from the outset.
Risk 5: An existing mortgage or equity release can block the DPA
The council requires a first legal mortgage charge on the property. If an existing mortgage or equity release scheme already has a first charge, the council may refuse the DPA entirely or limit the amount it is willing to lend. Check with any existing lender before applying.
Risk 6: Renting out the property reduces but does not eliminate the debt
Councils actively encourage residents to rent out their property during the DPA, as rental income reduces the weekly amount that needs to be deferred. However, rental income is counted as income and will affect the income contribution assessment. The net reduction in debt may be less than the gross rental income suggests.
Alternatives to a Deferred Payment Agreement
A DPA is one option. It is not always the most financially efficient one. Before committing, consider whether any of these alternatives might be more suitable:
- Selling the property immediately and using the proceeds to self-fund care. This avoids compound interest entirely and may result in a larger net estate if the property is sold quickly at a good price
- Renting the property and using rental income to contribute toward care costs without a DPA. If rental income covers or nearly covers the weekly care gap, a DPA may not be needed at all
- Equity release via a lifetime mortgage from a private provider. Rates and terms differ significantly from a council DPA and may be more or less favourable depending on the circumstances. Independent financial advice is essential
- NHS Continuing Healthcare if the resident has complex health needs that meet the primary health need test. CHC funding covers all costs with no charge against the property whatsoever. This option is overlooked by many families who assume a DPA is the only route
How to apply for a Deferred Payment Agreement in England: step by step
- Request a care needs assessment from the local authority adult social care team if one has not already been completed. This is the gateway to all care funding including a DPA.
- Request a financial assessment at the same time. The financial assessor will determine whether your relative's accessible assets fall below the £23,250 threshold when the property is excluded, making them potentially eligible for a DPA.
- Ask explicitly for a Deferred Payment Agreement. The council does not always proactively offer it. Put the request in writing to ensure it is formally considered.
- Arrange a property valuation. The council will require a current market valuation to determine the equity limit. Some councils use their own valuers; others allow you to commission an independent estate agent.
- Check for any existing charges on the property. If there is an outstanding mortgage or equity release scheme, contact that lender to confirm whether a second legal charge can be placed.
- Take independent legal and financial advice before signing. The agreement is legally binding. A solicitor can review the terms, confirm the equity limit calculation is correct, and advise on the implications for the estate.
- Sign the agreement and allow the legal charge to be registered. The council will register the charge at Land Registry. Once in place, the DPA is active and the council begins paying care fees.
The whole process should take no more than 12 weeks from application to the agreement being in place.
Scotland and Wales: key differences
| Nation | Interest rate during the agreement | Capital threshold | Key difference |
|---|---|---|---|
| England | 4.75% per annum compound (current to June 2026) | £23,250 | Standard DPA scheme. Must be offered to eligible residents. |
| Scotland | No interest charged while the agreement is active | £35,000 | Interest only applies at a reasonable rate from termination or 56 days after death. Free Personal Care also reduces the gap that needs to be deferred. |
| Wales | Interest applies (same government review mechanism as England) | £50,000 for residential care | Higher capital threshold means fewer residents qualify for a DPA. More people self-fund entirely. |
| Northern Ireland | No formal national scheme | Broadly mirrors England | DPAs may be available on a case-by-case basis through Health and Social Care Trusts. Contact your local Trust for current arrangements. |
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FAQ: Deferred Payment Agreements for care home fees UK
Does a Deferred Payment Agreement affect benefits or pension payments?
A DPA does not affect how income is assessed or paid. Pension income, Attendance Allowance (for self-funders), and other income continue to be paid as normal. The resident contributes their assessed income toward care costs throughout the agreement, and only the gap is deferred. Note that if local authority funding takes over fully, Attendance Allowance stops after 28 days as the care is then funded by the council.
Can the council refuse to offer a Deferred Payment Agreement?
If you meet the eligibility criteria, the council must offer a DPA. This is a statutory duty under the Care Act 2014. However, the council can decline if it cannot secure adequate equity in the property, if an existing first charge prevents a new charge being placed, or if there is insufficient equity to cover anticipated care costs. If the council refuses in circumstances where you believe you qualify, challenge the decision through the complaints process.
Can the property be sold while a DPA is in place?
Yes. If the property is sold during the resident's lifetime, the DPA debt, including all accrued interest and fees, must be repaid from the sale proceeds. Any remaining equity after repayment belongs to the resident or their estate. If the proceeds are insufficient to cover the debt in full, the shortfall becomes a separate liability.
What if the property value falls below the outstanding debt?
This is called negative equity and is a genuine risk for long-term DPA users in areas where property prices stagnate or fall. Local authorities are required to ensure adequate security when approving a DPA and the equity limit is designed to provide a buffer. However, if the property value falls significantly during a very long care stay, there is a risk that insufficient equity remains to cover the full debt. In this scenario, specialist legal advice is essential for the executor.
Can a joint owner's share of the property be used for a DPA?
If the property is jointly owned, the DPA can only be secured against the resident's share. The joint owner must give written consent for the legal charge to be placed. The council will only advance funds based on the resident's proportion of the equity, not the full property value.
Is a DPA the same as equity release?
No, though they share some similarities. Equity release products from private providers are commercial financial products with their own terms, rates, and FCA regulation. A DPA is a statutory arrangement with a local authority governed by the Care Act 2014. The interest rate on a DPA is capped by government and tends to be lower than many commercial equity release products. However, unlike some equity release products, a DPA does not guarantee the resident will keep a certain proportion of the property value.
What happens if the resident recovers and leaves the care home?
A DPA ends if the resident leaves permanent residential care. The outstanding debt becomes payable at that point, though the council may give a reasonable period for repayment. If the resident moves back to the family home, the legal charge is removed once the debt is settled.
Can the interest and fees be paid during the agreement rather than accumulated?
Yes. Most councils offer the option to pay interest and fees as they arise rather than adding them to the debt. If the family or resident chooses to pay interest regularly, this significantly reduces the final amount owed and prevents the compounding effect from inflating the total debt over time. This is worth considering if regular payment is affordable.
Related guides
- Nursing home costs in the UK Full breakdown of fees, means testing, and what happens when savings run out
- NHS Continuing Healthcare funding The one route where care is fully funded with no charge against the property at all
- How care homes treat private pension income What counts in the means test and what residents are entitled to keep
- Care funding thresholds across the UK How England, Scotland, Wales and Northern Ireland compare on capital limits and funding rules
- Am I legally responsible for my elderly parents? What adult children can and cannot be asked to pay toward care costs
Summary
A Deferred Payment Agreement allows eligible care home residents to use the value of their property to pay care home fees without selling immediately. The local authority pays fees on the resident's behalf, secured by a legal charge on the property, and the debt is repaid when the property is sold or within 90 days of the resident's death. The current interest rate in England is 4.75% per annum compounded daily, reviewed every six months. Fees, compound interest, property maintenance costs, and an equity limit of 70 to 80 per cent of the property's value all need to be understood before agreeing. In Scotland, no interest is charged during the agreement. The right approach depends on the specific financial circumstances and independent legal and financial advice is strongly recommended before signing.
Key Takeaways
- A DPA delays, but does not eliminate, the need to use property to pay for care.
- The current interest rate in England is 4.75% per annum compound until June 2026.
- Interest is reviewed every six months and can rise or fall at future reviews.
- Councils will only lend against 70 to 80 per cent of the property's value.
- The resident still pays income toward care costs throughout the agreement.
- The full debt must be repaid within 90 days of the resident's death.
- In Scotland, no interest is charged during the agreement period.
- NHS Continuing Healthcare is the only route where care is free with no property charge.
- Independent financial and legal advice before signing is strongly recommended.
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