Property funding for trading care homes, where the valuation basis matters more than the interest rate.
Going concern or bricks and mortar
This single distinction determines almost everything about a care home mortgage.
A lender valuing the home as a going concern is lending against the trading business: occupancy, fee rates, staffing costs and regulatory standing. The valuation reflects what the operating business is worth.
A lender valuing it as bricks and mortar is lending against the building alone, as though it were empty. The figure is considerably lower, and so is the advance.
Which basis applies depends on trading history, inspection rating and the individual lender’s policy. Establishing it before you agree a price is essential, because it changes the deposit required by a wide margin. Two lenders can look at the same home and reach very different numbers for this reason alone.
Where both valuations exist
A trading home is often valued on both bases in the same report. Where that happens, most lenders apply the loan to value to whichever figure is lower, which in practice is the bricks and mortar one. The reasoning is straightforward: if the business fails, what the lender is left holding is an empty building.
Take a home valued at £2.4m as a going concern and £1.6m on a bricks and mortar basis. At 70%, the loan is not £1.68m against the trading figure. It is £1.12m, because the percentage is applied to the lower valuation. The buyer funds the difference between that and the purchase price.
This catches buyers out more often than anything else in the process. A strong trading figure does not on its own raise the loan.
Why the building itself matters
Because the bricks and mortar figure so often sets the loan, the nature of the building carries real weight. A purpose built home with a high proportion of en suite wet rooms holds a stronger empty value than a converted house, because the alternative use argument is better and the rooms remain lettable to another operator.
Room count, room sizes against current standards, and any deferred maintenance all feed the same figure. An operator with an existing portfolio can sometimes bridge the gap by raising additional funds against other homes rather than putting in more cash.
Indicative terms
- Up to 75% loan-to-value on market value for owner-occupied elderly care where the operator is experienced
- Terms to 25 years
- Loans from around £150,000, for both acquisition and refinance
- Larger and portfolio transactions handled by specialist healthcare lending teams
Experience is doing real work in that first line. A first-time operator will not access the same terms as an established group, however good the home.
The commercial mortgage calculator gives an indicative repayment and loan-to-value figure. For the general product, see commercial mortgages.
Your inspection rating is a lending criterion
It is worth being blunt about this: your CQC, Care Inspectorate, Care Inspectorate Wales or RQIA rating is not background information in a funding application. It is central.
A home rated below good finds the lending market narrows sharply and the terms available reflect it. A recent poor inspection outcome affects your funding well before it affects your revenue. Occupancy takes months to respond; lender appetite responds immediately.
Where a rating has recently improved, evidence the turnaround properly: what changed, who drove it, and what is now embedded. That evidence can be the difference between a decline and an approval.
If you are buying a home with a poor rating deliberately, as a turnaround, say so at the outset. It is fundable, but the lender group is different and the structure often involves shorter term money first, refinanced onto a term mortgage once the rating is restored and trading has settled.
Our guide to healthcare regulator registration covers how each UK regulator’s position feeds into a lender’s assessment.
What lenders will want
- Three years of accounts plus current management figures
- Occupancy by month, not annually, with the trend
- Fee rates split between local authority and private funding
- Full inspection history and any conditions
- Staffing ratios, agency usage and registered manager arrangements
- The property, its condition, and any deferred maintenance
Local authority and private fee mix
A home heavily weighted to local authority funding has predictable but constrained income. A home weighted to private fees has higher margins and more exposure to local demand. Lenders assess the two differently, and a sensible mix is generally viewed as lower risk than either extreme.
Occupancy trend and staffing
Occupancy is read as a direction rather than a number. A home at 92% that was at 84% eighteen months ago reads very differently to one moving the other way, which is why lenders ask for it month by month.
Staffing cost as a percentage of turnover is the figure underwriters return to most. Heavy agency dependence is read as fragility, because it signals a home that cannot recruit and is paying a premium simply to stay compliant with its registration. A registered manager in post, and not working notice, matters for the same reason: registration risk is what turns a going concern into an empty building.
Common questions
How much deposit will I need?
It depends primarily on the valuation basis. On a going concern basis with a strong rating and an experienced operator, up to 75% LTV can be available. On bricks and mortar, expect to contribute considerably more.
Why would a lender use the lower valuation?
Because the lower figure reflects what the lender would actually recover. The going concern value assumes the home keeps trading with its residents, staff and registration intact. If it does not, the security is an empty building, so the loan to value is applied to the bricks and mortar figure instead.
Can a first-time operator get a mortgage?
Harder but not impossible. Lenders want relevant management experience, a credible operational plan and settled registered manager arrangements. Expect a larger contribution than an established group. See care home acquisition finance for how a purchase is assessed.
Does the home need to be trading?
For a mortgage, generally yes. A closed or non-trading home is a development or bridging proposition rather than a term mortgage. See care home development finance.
Can you help a resident or their family fund care fees?
No. We arrange business finance for care home operators and investors only. Borrowing by residents or their families to pay for care, including equity release and other later-life lending, is regulated and outside what we do. An FCA-authorised adviser can help with that.
All figures are indicative and subject to lender assessment, your circumstances, valuation and prevailing market conditions. Commercial mortgages and unregulated bridging loans are not regulated by the Financial Conduct Authority. Property offered as security may be at risk if you do not keep up repayments.