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Commercial mortgages for care homes

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 26th June 2019 *

Can I get a commercial mortgage to buy a care home?

We receive many enquiries from both current and prospective business owners regarding commercial mortgages and, in particular, whether providers will consider the lending requirements for their specific business activity.

One area we get asked more and more about of late is from people within the care sector who’re looking at how to finance the buying of a care home or for redeveloping existing premises. The good news is there’s lots of opportunities for businesses in this sector to access commercial mortgages.

In this article we will cover:

If you’re seeking a mortgage for a care home, read through the information below then make an enquiry with us so we can arrange for a commercial mortgage expert to speak with you directly.

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How can I secure a commercial mortgage for a care home?

The care sector has grown significantly over the last few years which has resulted in more care homes seeking funding for their businesses.

The good news is there are quite a few lenders who now cater for care home mortgages in the UK. If you’re looking for a commercial mortgage to buy and run a care home the first thing a lender will expect to see is previous operating experience with at least 2-3 years proven track record in the care sector.

If you’re looking to buy a care home as an investment and hire an experienced professional team to run it for you a lender will want to review the qualifications of the management staff you have assembled. A registered qualification such as NVQ 4 would typically be a minimum requirement.

In addition there are a number of other key factors that a prospective lender will want to assess before granting approval for a care home mortgage:

  • Recent Care Quality Commission (CQC) report rating for the care home will be reviewed to assess how well the care home is maintained. The CQC report is a key requirement for all nursing and care homes in the UK. Most lenders will insist that the care home has a minimum CQC rating of ‘Good’.
  • Occupancy rates. Low occupancy rates are a clear indicator of potential problems in the running of the home and will also affect profitability which, in turn, hinder affordability

Experience is very much a vital component lenders will want to see when looking to approve a care or nursing home mortgage. However, most lenders are extremely positive about the care sector market and keen to support well-run establishments.

If you’re looking to buy a care home or an existing proprietor looking for possible refinancing options or to add to your portfolio, make an enquiry with us and we can arrange for a specialist in this area to get in touch.

How much trading history do I need for a care home mortgage?

Most lenders will be reluctant to approve a commercial mortgage application for a care home without a strong previous trading track record. Typically, a lender will want to see the previous 2-3 years accounts for the care home you are looking to purchase or raise finance for.

Specialist lenders may consider a borrower with less experience than this, as long as the application is strong in other respects.

If the previous accounts show a poor trading record due to low occupancy rates, for example, lenders may be willing to be more flexible if the potential for increasing profits under a new ownership and management team can be clearly demonstrated. Robust projections and a strong business plan would help in this regard.

If you’d like to understand more about how commercial mortgages work and how they differ from residential mortgages and regular business loans take a look at our detailed guide here.

Do care home mortgages require a higher deposit?

Generally, most lenders require a deposit of between 20%-40% for commercial mortgages depending upon the level of risk they deem to be taking and the type of commercial mortgage requested.

For care home mortgages most lenders will require a deposit of 40%, some will require 30% and a few will allow 20% based on the strength of the business’ trading accounts,future profit projections and the borrower’s credit record.

Can I get a commercial mortgage for a care home with a poor credit history?

A poor credit history can, no doubt, cause problems with how much a lender may be prepared to lend you for a care home mortgage, depending on the type of issue you’ve had and when it was registered.

Some lenders might offer unfavourable rates or turn the borrower away if there’s bad credit on file, but there are specialist commercial lenders who cater for individuals and businesses with various forms of bad credit.

For more information on this, make an enquiry and we can arrange for an expert to contact you directly and discuss further.

Buying a care home with a bridging loan

Bridging finance is another form of commercial lending that could be used to purchase a care home. Typically, this form of lending is used if you need to complete your property transaction quickly and is usually only available over a shorter time period (usually 12-36 months)

As the name suggests, bridging finance is a ‘bridge’ between a purchase and a clearly defined exit strategy. This could mean that by the end of the bridging loan term you are able to refinance your lending to a commercial mortgage or you sell your care home business.

If you’d like to know more about whether bridging finance is a viable option for your care home purchase, make an enquiry and we can arrange for an expert to contact you.

Alternatively, you can read all about this type of lending here.

Buying a care home with development finance

If you’re looking to start a care home business from scratch - including building your own premises or overseeing its construction, rather than buying an existing property, you could consider using development finance to assist in this endeavour.

Development finance is quite similar to bridging finance.

The key difference is that the total amount you borrow can be released in staged draw-downs as the building construction takes shape. The benefit of this type of borrowing is that you only pay interest on the amounts that have been released to you.

Development finance can also be used to fund major renovation works on your care home where the business can not function until the reconstruction work is completed.

If you’d like to understand more about development finance and whether it could be used for your care home purchase take a look at our detailed guide here.

Why you should speak to a commercial mortgage broker

At Online Mortgage Advisor we can offer you a first-class service tailored to your own specific needs with access to the most experienced brokers available that:

  • Have whole of market access
  • Can offer bespoke advice on care home purchases
  • Have excellent relationships with care home lenders
  • Are OMA accredited advisors
  • Have completed a 12 module LIBF accredited training course

Speak to a care home business finance expert

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 26th June 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

Find out more about Commercial Mortgages

Commercial Mortgages Guide