The UK care home industry is big business. An ageing population means millions of people are needing assistance to carry out basic activities, often with the kind of full-time attention that only a care home can provide.
This is creating a booming demand for care facilities and has seen the UK care home industry mushroom, with revenues reaching £15.9billion in 2021.Â
Buying a care home or expanding an existing care facility can make good financial sense, and many buyers will seek a care home mortgage to fund their purchase. However, buying a care home is not as simple as buying a house. Different rules apply. Buyers must conform to a raft of regulations and lenders will carefully scrutinise the business side of the transaction as well as the property. Success depends on ticking all the boxes. Read on to find out more about buying a care home with a mortgage, and how to ensure your purchase is five stars all the way.
Buyers seeking to purchase a care home will typically fund the acquisition with a commercial mortgage. This is a business loan used to buy, develop, or refinance a care home – which can mean buying an existing care home, starting from scratch with a new property, expanding an existing facility, or even extracting equity for liquid cash.
Care home mortgages function like residential mortgages, where a lender provides a percentage of the purchase price based on LTV (loan-to-value, a comparison of the size of the loan to the value of the property), and the borrower repays the loan in instalments, as either capital + interest, or interest only and a lump sum capital repayment at the end of the loan term – which can be anywhere from 1 – 25 years. However, most other factors of a care home mortgage are unlike the standard residential loan:
Buying a care home is a big step, and as well as finding the right funding, buyers must consider other important factors before making a purchase. Key areas to pay attention to include:
If you’re buying an existing business, how is it structured? Care homes are typically operated by their owners through limited companies; therefore, you must consider if your purchase will buy the shares in the company or purchase the business and assets of the company. Much will depend on tax. As the buyer, you would only pay 0.5% stamp duty on a purchase of shares, whereas a business and asset purchase is likely to result in a greater stamp duty liability.Â
Due diligence is essential before considering a purchase of a care home. This means checking whether the care home has a satisfactory CQC report, and if the care home has been the subject of any litigation or major investigations. You must also ensure that the care home has been complying with regulatory requirements and that financial, tax and operational provisions are in good order.
The care home industry is regulated by CQC – the Care Quality Commission. They provide star ratings to reveal how well care homes are managed. Ratings for the care home to be mortgaged are a key part of the mortgage application and lenders will be seeking a high score. Low ratings may indicate a problem that could affect the facility’s occupancy levels and therefore, its income and ability to repay the loan.
Only half of UK care home revenues come from ‘self-funders’ (residents who pay for their care themselves). The other 50% of income comes from local authorities. If some, or all of the residents of the care home you are buying are funded by the local authority you must inspect the authority’s contract with the facility. If you are buying the shares in the company which operates the care home, check if there is a ‘change of control’ clause in the local authority contract which must be addressed. ‘Change of control’ clauses often require prior consultation with the local authority before the purchase can complete.
What are the terms and conditions of employment of the employees at the care home? Do they match with the terms and conditions you wish to adopt? If you are buying the business and assets of the care home, TUPE will apply (it will not apply in a company share purchase). TUPE is the Transfer of Undertakings (Protection of Employment) Regulations 2006, and it is designed to protect the employment relationship and contracts of employment of employees. If the business they are in changes from one owner to another, both buyer and seller have obligations to comply with under TUPE. You must find out what those obligations are and what the consequences are if you fail to comply.
Not necessarily, but it helps.Â
First-time care home operators may successfully obtain a commercial mortgage to buy their care home, but the borrower’s industry experience is a key consideration in the lender’s decision. They must be confident that the applicant has sufficient experience in the care sector to ensure the home will be well managed.Â
This means that as well as providing the usual business plan, references, and financial data, first-timers must also prove their ability to run a care home – usually with relevant industry experience as a care manager or similar role, and by providing CQC certification. (Registered care home managers must be of good character, be mentally and physically capable of performing the role and have the necessary skills, qualifications and experience. What constitutes ‘necessary’ skills, qualifications and experience for a registered manager varies from case to case and depends on the nature of the care provision).
As with any loan application, preparation is key. Having all your ducks in a row reduces delay and improves your chances of success:
Each lender will have different criteria and that may affect the documentation they request. However, most care home finance applications will require:
The lender will also conduct standard credit and security checks.Â
Top tip: Check your personal and business credit scores before you apply. Errors on your report could impact limit your ability to secure the loan you need.
Your business plan and presentation are a central element of your care home mortgage application. Lenders are looking for borrowers who can deliver a successful business outcome. Your cashflow forecasts, budget management plan, staff management plan, marketing plan, care quality mandate, and long-term growth or exit plan are key to securing the loan you need. Where you lack experience or skills to fulfil these objectives, your business plan must reveal how and who you will recruit to support you. In areas where your skills are not strong, such as financial forecasting and projections, it is worth investing in professional assistance to build the information sets you need.
Just as no two care homes are the same, so no two care home mortgages are the same. The type of care facility you are buying, its location, its revenue streams, its levels of existing debt and its cashflow will help to determine the type of loan you need. Matching your requirement to the right loan is critical. It therefore pays to consider all the options before settling on an offer.Â
Care home mortgages are a niche area, with different rules of application. Borrowers seeking these types of loan may find themselves forever searching for the best rates and making applications to lender after lender. The delays this can create could cause you to lose the care business you wish to buy. Instead, working with a broker, who can access care home mortgages from a wide range of lenders is a better way to go. No more cold calls and endless demands for information. Simply tell us what you need and let us do the rest.Â
The carefree way to buy a care home – get the best rate, the best terms and the right care home mortgage for your needs. Contact Swoop today.
Swoop was amazing! I was looking for refinancing and they were straight onto finding me the best possible option. I would highly recommend them.
Owner, F45 Cambridge
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.
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