What charges are payable
If you enter a DPA with your local authority, there might be some charges. These can include:
- Administration fees for setting up the agreement, such as Land Registry fees, home valuation costs, legal fees, postage, phone, and printing.
- One-off charges later. If your debt reaches half the value of your home, regular revaluations of your home will incur fees.
The council's fees must be reasonable and should only cover their costs. They must make a list of these charges publicly available.
Interest charges on deferred payments
In England and Wales, your local authority may charge interest on the deferred payments, which are reviewed every six months in January and July.
The local authority must inform you before making the agreement whether interest will be charged, what the interest rate is currently set at, and when it is likely to change.
If interest is charged, it must not exceed the national maximum interest rate published by the government. The national maximum interest rate will track the market gilts rate specified in the most recently published report by the Office of Budget Responsibility plus a 0.15 per cent default component.
For example, gilt rate of 2 per cent plus 0.15 per cent equals a maximum interest rate of 2.15 per cent.
The local authority must ensure any change to the national maximum rate is applied to the DPA agreement, unless it charges less than the national maximum. The agreement must also contain a term ensuring that the interest rate does not exceed the national maximum.
If the interest charge is to be added to the deferred amount, a local authority must ensure that you understand that the interest will be compounded.
You can ask the authority to allow you to pay the interest separately, on an ongoing basis, to avoid it being compounded.
In Scotland, no interest is charged while the agreement is active. Interest is only charged after the agreement ends or 56 days after death, at a reasonable rate set by the council. If the debt is not paid on time at the end of the agreement, extra interest and administrative fees might be added.
What is the equity limit?
The equity limit is the maximum amount that can be deferred, and a local authority must define this at outset, but it can vary over time. It is the total amount that can be deferred and ensures the amount that is actually deferred does not rise above this.
The local authority will value the property at outset and a valuation will be required every two years. Separately to that, there must be valuations when the total deferred amount reaches 50 per cent and 70 per cent of the property value.
When the DPA is secured against a property, the equity limit should be set at the value of the property less 10 per cent, minus the amount of any encumbrances already secured on it (for example a mortgage), and minus the lower capital limit, which is currently £14,250.
