Care homes often charge significantly higher care fees for privately funded residents compared with the rate charged to the council. This means that the care home charges are likely to be higher with a loan style DPA.
The administrative costs of the loan style DPA may be higher than those of the traditional DPA.
If the local authority discovers that any amount loaned under a loan style DPA has not been used to pay for the care charges, the council may demand immediate repayment of that amount with interest.
How DPAs work and the costs involved
It is beneficial to consider the likely costs before entering a DPA, which may include additional top-ups that you may want to add later.
As a minimum, the local authority must allow you to defer your ‘core’ care costs – that is, the cost the local authority considers is necessary to meet your eligible needs.
It can consider a request for a top-up to be included in the deferred payment, while retaining discretion over whether to agree in a specific case.
However, it should accept any top-up deemed to be reasonable given considerations of affordability, sustainability, and available equity.
By entering into a DPA, a local authority agrees to:
- defer the payment of charges by you to them for the costs of meeting needs in a care home or supported living accommodation; or
- defer the repayment of an instalment loan made to you to cover the costs of care and support in a care home or supported living accommodation.
In principle, the amount that can be deferred should be capable of covering the whole of the care costs, subject to any contribution the local authority can require from your income.
If you consider a top-up to enter a higher cost care home, the local authority should consider whether the amount of the deferral requested is sustainable, given the equity available.
When calculating the amount of the DPA, three elements dictate how much you can defer:
- the amount of equity (value) available;
- the amount you contribute to care costs from other sources, including income, savings, financial products, or a third-party; and
- total care costs you face, including any top-ups you are seeking.
Interest and administration charges are chargeable and payable and can either be paid separately or included as part of the DPA and deferred. DPAs must be run on a cost-neutral basis – that is, the charges cover costs and no more.
In agreeing the amount of the DPA, the local authority needs to ensure it is sustainable. That assessment will likely include a range of factors depending on the client’s individual circumstances.
Examples are: the likely period of the DPA (that is, is it a bridging loan?); the amount being contributed from other sources like savings (and when these are likely to be diminished); and any potential changes to care and support needed in the future.
However, there is an overall equity limit that must be adhered to. The equity limit will always be lower than the value of the property as it is designed to leave a buffer to cover potential changes in property values and interest rates.
