Interest charges on deferred payment schemes

In a blow to homeowners who require residential care, local authorities are set to start charging interest on deferred payment schemes.

The deferred payment scheme allows someone who goes into care to keep their property and still get financial support from the local authority with paying for care home fees.

The local authority recovers the fees from the proceeds when the property is sold.

This scheme can also be used if there is a delay in selling a property.

Most local authorities currently offer the deferred payment scheme interest-free. However, interest is set to be charged at around 4% on new loans.

According to the House of Commons Library, this could result in interest charges of £589 on a £27,200 bill for a year’s stay in a care home or £13,827 interest on a £136,000 bill for a residential care home stay of five years.

The average stay in a residential care home of two and half years could cost £3,513 in interest charges, assuming a cost of £68,000.

These figures would be higher in practice, as they do not factor in price inflation.

Commenting on the new interest charges, Labour’s shadow care minister Liz Kendall said:

“These charges will come as a huge shock to elderly people and their families. Ministers have repeatedly claimed care costs will be capped at £72,000 but the truth is elderly people will have to pay far more.

“These new interest charges won’t be included in the so-called cap on care costs, and will continue to clock up if people can’t sell the family home once a loved one has died.

“Elderly people deserve to be told the truth about how much they will really have to pay.”

The new interest charge on the deferred payment scheme will be another financial consideration for elderly people entering residential care.

It makes sense to seek expert independent financial advice if you or a relative need long-term care.

Photo credit