Care Home Mortgages

How Much Can I Borrow?

Most care home lenders will lend up to around 70% loan to value. They’ll base it on the purchase price or the valuation, whichever is lower.

Some lenders will go further. With a highly experienced operator, a strong track record and good CQC results, we’ve seen borrowing reach 80% LTV. Deals like that are the exception, though, not the norm.

Loan to value is only half the story. The lender also needs to see that the home’s income can comfortably cover the mortgage payments, with room to spare. Expect to provide:

• a full business plan
• cashflow forecasts
• details of income per room

Why income per room matters

Care homes typically earn £700-£1,500 each week (per room), but that figure moves a lot depending on the care provided.

Many homes offer different levels of care on different floors. For example, residential care might be on one floor and more intensive nursing or dementia care on another. Each room earns a different amount, and lenders want to see that breakdown, not one average figure.

Local authority contracts matter too. The lender will want to know what the council pays for each resident, and how long the contract runs. A longer, well-priced contract gives them far more confidence in your income.

How Much Deposit Do I Need?

As a rule of thumb, plan for a deposit of around 30%. Experienced operators with a well-established business may be able to put down less, sometimes considerably less.

Every lender will want you to have real money in the deal. The exact amount depends on:

• how strong the business is
• your experience
• the valuation
• the proposal as a whole

Don’t forget the other costs

Your deposit isn’t the only cash you’ll need. Budget for:

• Stamp Duty Land Tax, where it applies
• Solicitors’ fees
• Valuation fees
• Lender arrangement fees
• Broker fees
• Accountancy and other professional costs
• Working capital to run the home after completion

Work out your total cash requirement early, not just the deposit. It’s one of the most common things buyers underestimate.

How Is a Care Home Valued?

A care home is a working business, so it isn’t valued like an ordinary commercial building. Lenders also differ in which valuation they’ll lend against, and that can change how much you’re able to borrow.

There are two main bases:

• Market value as an operational entity. This is the value of the home as a fully equipped, trading business, including the property, the fixtures and the income it generates.
• Vacant possession value. This is what the building would be worth empty and not trading. It’s usually much lower.

A lender that uses the operational valuation will generally lend more. Getting the right lender for your deal can make a real difference to the cash you need to put in.

The valuer will look at things like:

• the property’s condition and location
• the number of beds
• occupancy
• fee income
• staffing and running costs
• profitability
• how sustainable the business is

Do I Need Care Experience?

It depends on the lender.

High street banks will almost always expect you to have experience of running care homes. If this is your first care home, you’ll most likely need a specialist lender.

That doesn’t mean first-time buyers can’t get finance. Lenders will look at your wider business and management background. Most importantly, they’ll look at the team who’ll actually run the home.

An experienced registered manager and a clear management structure can carry a lot of weight. Every case is different, which is why it pays to have a broker who knows how to present yours.

What If There’s a Poor CQC Inspection?

An inadequate or “requires improvement” rating, either at the home you’re buying or at one you already run, will make some lenders cautious.

It won’t necessarily rule you out. Expect the lender to ask for:

• a copy of the inspection report
• a clear account of what’s been done to put things right

If you’re buying a struggling home with a plan to turn it round, that plan needs to be detailed and believable.

Allow Time for CQC Registration

If you’re buying a care home in England, the new operator will normally need to be registered with the CQC to run it. Registration can take a while, so build it into your timeline early. It’s often what dictates when you can complete, more than the mortgage itself.

Should I Buy Through a Propco and Opco?

You could buy the care home in your trading company’s name. Many buyers choose a split structure instead:

• a property company (Propco) owns the building
• an operating company (Opco) leases it and runs the care business

Each approach has tax and liability implications, so take advice from a tax specialist before you commit. We’ll work with your accountant to arrange finance that fits whichever structure you choose.

Other Ways to Fund a Care Home Purchase

A commercial mortgage is usually the most cost-effective way to buy a care home. Sometimes, though, it isn’t available straight away.

A common example is a home that’s run down, closed or in need of major work. Most commercial lenders won’t fund a home that isn’t trading. A care home bridging loan can fill that gap.

How a bridge-to-mortgage plan works

1. Buy with a bridging loan. You’ll typically receive 60–65% of the purchase price, after fees and interest are taken off. That figure can be higher if you have other property to offer as extra security.
2. Carry out the renovations.
3. Open, register and start taking residents.
4. Refinance onto a commercial mortgage. Once the home is trading and the lender can see real income, you refinance to pay off the bridge. With the home now worth more, you may also be able to take back some of the money you put in.

Need a Bridging Loan instead?

What Will the Lender Want to See?

Every deal is different, but be ready to provide detailed information about yourself and the home.

About the care home

• Property details and the agreed purchase price
• Last two years’ accounts (if already trading)
• Up-to-date management accounts
• Last six months’ business bank statements
• Occupancy figures and income per room
• Staffing information
• Inspection history and regulatory position

About you and your team

• Your CV and relevant experience
• Details of the management team
• A business plan and financial forecasts, where required
• Details of your deposit and where it’s come from
• Your assets, liabilities and personal finances

For every shareholder with 25% or more

• Credit report
• Proof of personal income
• Last three months’ personal bank statements
• Photo ID (passport or driving licence)

Having all this ready before you approach lenders speeds things up. It also shows them you’re serious.