Care Home Mortgages Explained

Explore all the options you need to cover if you’re looking to finance an existing or new care home.

How do care home mortgages work?

This is a commercial mortgage; there are no ‘off-the-shelf’ products. Rates are likely to be higher, and the criteria are stricter than those of residential mortgages. This is all because of the higher risks involved in running and financing this type of business.

With the right advice, however, you should be able to get a mortgage deal that’s well within your budget and is a fair reflection of your industry experience.

How to get a care home mortgage

Getting a care home mortgage can feel daunting, but it needn’t be with the right specialist support. Contact us, and we can match you with a broker who has experience with these types of loans.

They can guide you through the whole process, including:

Putting together your business plan

This should include as much detail as possible that shows lenders that the business is going to be profitable enough to cover your repayments. It should include your financial projections, occupancy rates, marketing plan, and evidence of your track record within the care home industry.

Make sure your credentials are up to scratch

There will be plenty of industry-specific criteria to meet, including insurance and health and safety requirements, staff qualifications, and Care Quality Commission (CQC) ratings. Your broker can advise you on exactly what documents you need to show your lender.

Find the best mortgage deals for you

When you’re comparing deals, it can be tempting to just look at rates, but your broker will have a deeper product knowledge and be able to compare other terms that might better suit your circumstances.

Eligibility criteria and deposit requirements

Industry experience

Your level of experience running this type of business is a critical factor in securing a mortgage for a care home. Most lenders will only consider applicants with at least 2-3 years of 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. This usually means a registered qualification of NV4 level 4 at minimum.

Business performance

If you’re taking over an existing business, it should be easier to make a case for profitability than if you’re starting from scratch. Lenders will want to see a strong business plan, financial records, projections, and occupancy rates.

They’ll also want to see a recent 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.

Deposit

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, your CQC rating and overall risk profile.

Can you get a care home mortgage without industry experience?

This may be possible in some cases, 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.

If you are looking to establish a foothold in the care home sector and need more information on your options, speak to a specialist broker.

Which lenders are available?

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, and you may have to use a specialist lender, many of which only work with brokers.

For example:

• Allica Bank offers specialist commercial mortgages for care homes from £500,000 to £10m for experienced operators or £5m for first-time care home operators.
• Triodos Bank offers finance to buy, build or refurbish care facilities, with mortgages of up to £20 million and up to 70% LTV.
• OakNorth specialises in finance for care homes and can offer loans from £250,000 up to tens of millions on a bespoke, case-by-case basis, with the option for umbrella facilities for multiple development projects.

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 main options are likely to be:

• Taking out a bridging loan is a type of finance used to free up equity from other assets or investments you own 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.
• Releasing equity from an existing property: If you own a portfolio of properties, perhaps even multiple care homes already, you may be able to release equity by remortgaging an existing property to fund the purchase of the new own.

Get matched with a broker experienced in mortgages for care homes

Getting a mortgage for a care home purchase is complicated, 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 0330 818 7026 or make an enquiry and we can introduce you to the ideal broker for your circumstances.