Updated: May 24, 2023
Care Home Mortgages
Trying to get funding to buy a care home? There are plenty of care home mortgages around! Find out who the main lenders are & how to get one in our guide.
Author: Pete Mugleston - Mortgage Expert, MD
Updated: March 14, 2022
If you’re looking to take advantage of the ever growing care home sector and purchase premises, you’ll be pleased to know that commercial mortgages are perfectly accessible for this purpose, depending on your circumstances.
This article will provide you with all the information you need if you’re considering applying for care home finance, and how seeking the help of a commercial broker with expertise in this area can be to your advantage.
The following topics are covered below...
Can you get a care home mortgage?
Yes, it’s possible. Mortgage lenders have recognised the increasing need for care homes in the U.K , and a growing number are now willing to provide commercial mortgages for this purpose. For those with the necessary experience, this can be a profitable investment, with an average return of 23-35%.
Aside from the usual eligibility criteria, lenders will mainly focus on relevant experience and qualifications in the care sector, with an NVQ 4 and 2-3 years of experience generally being a minimum requirement. This applies regardless of whether you intend to purchase an elderly care home, assisted living home, or children’s care home.
Most lenders favour the purchase of freehold premises for care homes, however, leasehold properties may also be considered . Additional security in the form of property assets may be required to secure a commercial mortgage on a leasehold care home, and the length of the loan term will be capped at the amount remaining on the lease.
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How they work:
Commercial mortgages work similarly to residential mortgages, in that they are secured on the property and can be repayment or interest-only. As with all commercial mortgages, care home mortgages will be considered on a case-by-case basis.
The maximum LTV (loan to value) is decided during the lender’s assessment of your investment’s potential, but this generally ranges from 50-75%. It may be possible to secure higher borrowing in some cases, however this will be limited to those businesses with a strong history of profitability and regulatory body ratings.
Terms of between 15 and 25 years are common for care home mortgages, and a well-performing business can expect to borrow around 5-6 times their net profits. Interest rates are generally decided on assessment of the perceived risk of lending, with a number of factors influencing this decision, including experience, profitability, and suitability of the premises.
Criteria and eligibility
There are some key criteria that potential lenders will expect applicants to fulfil before approving a commercial mortgage for a care home:
Care Quality Commission (CQC) approval
When seeking to finance or refinance a care home, the approval and rating of the Care Quality Commission (the regulatory body for the care industry), are an important consideration for lenders, with most only considering those with a CQC rating of ‘good’ or ‘outstanding’.
Those without prior care home ownership experience will need to go through the CQC application process prior to making a mortgage application.
Low occupancy rates will be a deterrent for lenders, as they indicate the potential for poor profitability, and therefore repayment affordability. Occupancy rates can be affected by the CQC rating, location and general appeal of the care home.
Most lenders prefer that care homes have a minimum of 26 beds, however, this may not apply if you plan to fund a specialist care home, such as one that supports those with specific illnesses and disabilities.
Following updates to the Care Standards Act, there is less opportunity to purchase and convert older properties into care facilities, given that the requirement for lifts, widened doorways, and similar accessibility features usually make this too challenging and costly.
Lenders will therefore carefully consider the viability of the chosen premises, and purpose-built care homes are likely to be easier to secure finance for. The location of the premises can also be a determining factor in a lender’s overall decision.
Industry knowledge and experience
Experience within the care industry is another key consideration that lenders will make when assessing your application. Most lenders will prefer applicants to have 2-3 years of experience of owning and/or managing a care home. They will also want to know that you have managed previous establishments to a high standard.
If you have less experience, it may still be possible to secure funding with a specialist lender, however, a strong business plan is likely to be necessary.
Standard mortgage eligibility criteria
In addition to the industry specific requirements above, general mortgage acceptance criteria will also apply, such as:
- Affordability – Previous financial performance of your business will be used to calculate the affordability. The past profitability of the care home to be purchased may also contribute to this calculation
- Deposit availability – The majority of lenders will expect a deposit of 30-40%, although more specialist lenders may accept a lower deposit, depending on the past, and predicted future performance and profitability of the business
- Age on application – Age-restrictions can apply to commercial mortgage products, and may limit the amount you can borrow or length of the term, if you are an older borrower
- Credit status – the credit status of a business is less impactful for commercial borrowing, however, it can affect the availability of the most competitive rates
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How a commercial mortgage broker can help
Finding a mortgage broker with expertise in securing care home mortgages is invaluable for those looking to secure finance for this purpose. They stay up to date with frequently changing lender criteria, and have access to the entire market of care home lenders.
The mortgage brokers that we work with can help you tailor your application towards a lender who will be most suited to your individual needs and circumstances. As well as saving you time and money, this can help ensure you achieve the successful outcome you’re looking for.
Contact us today and we’ll introduce you to a broker whose knowledge and experience most closely matches your needs. Simply call 0808 189 0463 or complete the contact form, and let us take care of the hard work for you.
Lenders and rates
There are a growing number of lenders who are happy to arrange commercial mortgages for care home purchases, including some of the larger high street banks. Most offer commercial borrowing from £25,000, which is the point where business loans are capped, however, it is often financially inefficient to borrow below £50,000 with a commercial mortgage.
Some lenders offer fixed-rate periods, however the more niche commercial lenders tend to tailor the terms to each individual applicant. As a result it’s impossible to predict exactly what rate you may qualify for. The larger the deposit you can provide, the greater the choice of lenders, as there are fewer available who offer a loan-to-value (LTV) above 50%.
Calculate your monthly repayments
You can use our mortgage calculator below to work out what the monthly repayments will be on your care home mortgage.
Care Home Mortgage Calculator
This calculator can tell you how much your care home mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate (between 3.5% and 6% is average for commercial mortgages), and our calculator will do the rest.
Total amount paid at end of term:
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Types of finance available
Alongside commercial mortgages, there are other forms of finance that may be suitable for the purchase of this type of property.
It’s recommended that you discuss these options with an expert in care home finance before deciding which is the most suitable.
Bridging loans, also known as bridging finance, are short term commercial loans that are commonly used to facilitate a quick sale, as they can be arranged much more quickly than a mortgage.
Bridging loans usually have a term of between 12 and 36 months and their approval is heavily dependent on a viable exit strategy. In the case of a care home, this type of finance would typically be used to bridge the gap between the purchase, and refinancing onto a commercial mortgage. Another viable exit strategy may be the sale of the care home, or another portfolio property.
If you’re planning to build a new care home, or redevelop an existing property into one, then development finance is another potential option. This is similar to bridging finance, in that it is usually a short term commercial loan, however, the funding is provided in stages to mirror the development stages of the project, rather than in one lump sum.
Known as draw-downs, each stage of funding incurs interest independently, meaning that you only pay interest on the funding that has been released. We can put you in touch with a broker who specialises in this form of finance, should it be the most suitable option for you.
Get matched with a care home mortgage broker
When seeking finance for a care home, it’s vital to receive guidance and support from a commercial mortgage broker that has experience in securing this type of lending.
The commercial brokers we work with have access to, and strong working relationships with, the full spectrum of commercial lenders who approve these types of mortgages. They can save you the time, money, and often disappointment of selecting the wrong lender for your circumstances.
Contact us today on 0808 189 0463 or complete the contact form, and let us match you with the ideal commercial broker for your needs.
Get Started with a Broker
Maximise your chance of approval with specialist advice from an expert in Care Home Mortgages.
If your business has a poor credit history, it can affect your access to certain lenders, and more competitive rates, however, there are lenders who specialise in offering bad credit commercial mortgages, so it’s certainly still possible, depending on your individual circumstances.
A commercial mortgage may be an option if you’re looking to buy a successful and operational business, however, if you’re planning to buy and refurbish an ex-care home, it’s likely that bridging finance will be your only option. It may then be possible to refinance onto a commercial mortgage, once the renovations are complete, and they are in line with CQC standards.
Lenders who offer commercial mortgages to purchase care homes are also more than likely to offer remortgage options. In order to meet the remortgage criteria, you will usually need to provide proof that the care home has been well-managed and occupied, is consistently profitable, and has maintained a good or outstanding CQC rating.
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Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!