It’s no secret that people are living longer. A large proportion of people in the UK are now over the age of 65, and, as a result, this has led to the care sector becoming more attractive to new businesses and investors.
Businesses within the sector have typically seen their value increase by between 6-10 times their adjusted net profits, with profitability sitting somewhere between 23-35% of the turnover.
So how do I get a mortgage for a care home? Before you apply, the main thing to know is that most lenders will only fund experienced operators with a minimum of 2 or 3 years in the industry.
What if I want to buy my first care home?
There are still lenders out there that will look at your application, but you must have at least specific care home-related experience – even if you’re planning on putting managers into the home to run it for you.
You will benefit from having a registered management qualification like an NVQ Level 4 and if you don’t have this, then you may need to consider recruiting an existing manager of a care home to join your team and put them on the mortgage application.
Are there any other processes I’ll need to go through before applying?
As you’ll be a new entrant to the market, Care Quality Commission (CQC) will want to speak to you and put you through their application process, whilst Disclosure & Barring Service (DBS) checks will also be taken.
What if I want to take over a care home?
If you’re looking to fund the purchase of a care home that is no longer trading, and you want to refurbish it, then a bridging loan may be your only viable option.
It’s usually easier to secure a bridging loan as it’s a form of short-term finance, but the lender will still want to fully understand what you have in mind for your exit strategy from the loan and this usually requires some form of care home experience.
What’s the mortgage process?
Like any other mortgage, lenders will want to look at your trading accounts to ensure that the care home is suitable for their borrowing, and your CQC report will also be looked at.
Regardless of the type of care home that you’re looking at, you will always need to provide the latest three years’ annual trading accounts so that lenders can then assess your affordability based on your financials. Typically speaking, they lend around 5-6 times your adjusted net profits after taking your personal drawing requirements into account.
What types of care home are there?
There are two main types – freehold and leasehold.
When purchasing a freehold care home, the more successful and desirable the location the more it will be preferred by lenders. Most will prefer the homes that have over 20 bedrooms and the maximum loan-to-value you can achieve on the smaller homes will be a lot less than these.
If you’re looking at buying a leasehold care home, lenders will often require tangible security like your home or any other property that you may own. If you don’t have any of these, then there are lenders that will offer an Enterprise Finance Guarantee loan, giving you the backing of the government. It should also be noted that the loan term that a lender will offer you is unlikely to be longer than the remaining lease.
What sort of rates will I be looking at?
Like any mortgage, it varies; but you’ll be looking at a starting point of around 2.1% above the Bank Base Rate with arrangement fees ranging from 0-2%.
The maximum term that most lenders will consider will be between 15-25 years and interest-only terms tend to be available on a 6-12-month basis with loan-to-values varying between 55-70%. Though, if you have enough supporting security, you may be able to borrow more than 70%.
How long will it take?
It varies between three and seven months. If it’s your first care home purchase then it will tend to take longer than it would if it wasn’t, as you will need to allow time for your CQC application and interview.
How do I apply?
To begin your application, you will need to speak to a broker who has access to a wide panel of lenders so that they can get the mortgage product most suited to your circumstance.
You will need documentation such like the accounts for the care home that you’re looking to finance and an overview of your background experience. There are quite a few other bits that you’ll need like your CQC reports and occupancy schedule for the home, which can be daunting if it’s your first one, so it will benefit you to speak to someone who can walk you through the process.
Contact one of our care home mortgage experts below to get your application rolling or if you have any further questions.