Care Home Mortgages
If you’re planning to take out a mortgage on a care home, read on to see what’s available, what lenders will want to see in your application and how working with the right broker can help you get the best deal.
The care sector is a rapidly growing area with an increasing number of people looking to purchase or redevelop a property for use as a care home. While these properties are often described as residential, care homes are businesses and therefore need a commercial mortgage.
Thankfully, this type of finance is widely available, with a range of specialist and high street lenders offering flexible products to suit business propositions of all types.
If you’re planning to take out a mortgage on a care home or nursing home, this guide will give you a handy overview of what’s available, what lenders will want to see in your application and how working with the right broker can help you get the best deal.
How do care home mortgages work?
Care home mortgages work much like all other commercial mortgages do, so it will be helpful to familiarise yourself with the basics of this type of borrowing before you get started.
The main points to be aware of are that there are no ‘off-the-shelf’ products, rates are likely to be a bit higher and the criteria a little stricter than what we tend to associate with residential mortgages. This is all because of the higher risks involved in running and financing a business.
With the right advice however, you should be able to get a deal that’s well within your budget and is a fair reflection of your industry experience.
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How to get a care home mortgage
To get a mortgage on a care home or nursing home, you’ll need to approach a lender that specialises in the care sector. They will assess your application on an individual basis and make you an offer according to how well you meet their criteria.
Here’s a few simple steps we recommend you take to make this process more straightforward:
Step 1. Get your paperwork together
The first thing you’ll need to do is ensure you have the right paperwork so lenders can establish the basics of affordability and eligibility.
For any business mortgage, this will include the following documents both for yourself and your company where applicable:
- Bank statements covering the past 3 months
- Credit rating
- Trading figures for the past 3 years
- Proof of address and identity
- Business plan
- Lease or tenancy agreement for your business premises
- Possibly an accountants’ projection
Step 2. Prepare proof of industry experience and business case
In addition to the usual documents, an essential element of your application for a care home mortgage is proof of previous operating experience in the care sector (see Eligibility section). The more industry experience you can demonstrate, the more generous lenders are likely to be.
There are some further guarantees specific to care home purchases that your lender will ask to see. These include:
- A recent Care Quality Commission (CQC) report, showing how well the care home is maintained. Most UK lenders will insist on a minimum CQC rating of ‘good’ before making an offer.
- Occupancy rates information: if occupancy rates are low, this will be a red flag to lenders as they’ll want to be satisfied that the business is profitable enough to cover repayments.
- Suitability of the premises. Newer properties are generally preferred by lenders, as they are easier to equip with accessibility features often needed in care homes – such as wide doorways, and lifts.
Finally, if you’re an investment buyer planning to employ a team of experienced professionals to run a care home for you, lenders will want to see proof that your management staff are suitably qualified. This usually means a registered qualification of NV4 level 4 at minimum.
Step 3. Speak to a broker experienced in care home mortgages
Getting all this documentation prepared will be a significant amount of work and failing to produce any one of them could put your whole purchase in jeopardy. This is where seeking the help of a broker with experience arranging mortgages specifically for care homes is a shrewd move.
They’ll be able to help make sure your application is all in order before submitting it. Your broker can also identify the best lenders for this type of mortgage, saving you a lot of time and, potentially, some money too.
Make an enquiry today if you’d like us to match you with one of the care home mortgage specialists we work with.
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Can you get a care home mortgage without industry experience?
In some cases this may be possible, particularly if you have experience in an associated field. However, you will need to take significant steps to prove that you are suitably equipped to take on the task as a first-time operator, such as becoming a regulated care provider, and even then only a few lenders will consider your application. Be prepared though that the first deal you get is likely to be at a higher rate.
Speak to a specialist broker if you are looking to get a foothold in the care home sector and you need more information on your options.
Eligibility criteria and deposit requirements
As mentioned above, your level of experience in running this type of business is a critical factor in securing a care home mortgage. Most lenders will only consider applicants with at least 2-3 years proven track record of successful trading, and they’ll want to see credentials for any management staff you plan to bring on board at the outset too.
Once you’ve satisfied the lender that you and your team have the right qualifications and experience, you’ll need to put down a deposit. Deposits for commercial mortgages are typically around 20-40% of the purchase price, depending on how well you meet the criteria, the strength of your trading history, CQC rating and your overall risk profile.
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Which lenders offer mortgages for care homes?
Thanks in part to an ageing population, the care home market is growing fast and most mainstream commercial lenders, such as Barclays and HSBC can, potentially, adapt their policy to include provision for care home mortgages. However it’s still considered a relatively niche area.
Some specialist commercial lenders work directly with the public, but many only deal with brokers so you’ll need to go through one to ensure you have access to the widest range of products. Working with a broker also means you’re much more likely to be successful the first time around, avoiding the credit implications of failed applications and saving you valuable time.
Other ways to fund a care home purchase
There may be other ways to get funding for a care home purchase or refinance, particularly if you already have a portfolio of property or investments. Depending on your circumstances, the two main options are likely to be:
- Taking out a bridging loan: this is a type of finance used to free up equity from other assets or investments you own in order to complete a purchase. Once the purchase is completed, you pay back the loan. Find out more in our guide to bridging loans.
- Using development finance: if you plan to build a new care home rather than purchase an existing property, development finance could be a good option for you. The process is similar to that of a bridging loan, but you can draw down the funds in stages as the building work develops, only paying interest on the sums that have been released to you. Development finance can sometimes also be used to finance major renovations.
There are pros and cons to each option, so it’s a good idea to research all of them in detail before making a decision. The brokers we work with have experience of a range of financing methods and can advise on the best lenders to approach, whether you decide to go down the business mortgage route or opt for a different type of finance.
Get matched with a care home mortgage specialist
Getting a mortgage for a care home purchase is a complicated process, usually requiring highly specialist advice from a broker with specific sector experience. To get your application off to the best possible start, call us today on 0808 189 2301 or make an enquiry and we can introduce you to the ideal broker for your circumstances
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A strong business plan will help your application enormously and is especially important if your level of experience is at the lower end of the scale. The point of a business plan for the lender is to set out why the risk to them is worth taking.
The essential items in your plan should include: what your business does now and your mission for the future, how it operates, details of your management team (if applicable) and their qualifications, financial data including earnings and outgoings for the past 3 years, overheads, projections and future strategy, with proof that you have the resources needed to achieve your goals.
Different lenders may ask to see other points addressed in your business plan so be sure to discuss the requirements with them and/or your broker.
The cost of opening a care home is not limited to the purchase price, which will itself vary considerably depending on the location, size and condition of the property you wish to purchase or develop.
From the start, you will need to be able to pay for the furniture and specialist equipment needed to fit out a care home, the salaries of staff working at the home, the energy costs, catering and maintenance, recruitment, insurance and marketing costs. In September 2022 the minimum upfront cost was estimated at £2 million.
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