Care homes are a growing business. There are two primary avenues for care home mortgages. Either buying a care home flat for retirement or as a business venture. These require different mortgage types and you might need the help of one of our independent mortgage brokers to find the right mortgage for your needs.

In this guide, we’ll cover what you need to know in order to get a mortgage for a care home. We’ll primarily consider commercial mortgages for care homes run as a business.

Can I Get a Mortgage for a Care Home?

Yes, getting a mortgage for a care home is possible, depending on the type of purchase you want to make. Most mortgage providers in the UK will offer residential mortgages, but commercial mortgages can be harder to get. Commercial mortgages require more information and checks than a standard residential mortgage.

Care Home Mortgages for Residency

If you’re looking to mortgage a flat in a care home, this is called a retirement mortgage. These products can be interest-only or can include payments towards the property. Depending on your age, you could struggle to get a mortgage with a long term. This is because most lenders will have maximum age where they no longer offer mortgages, due to the risk that the borrower won't be able to continue payments at some point.

There are also often higher deposit requirements for retirement mortgages compared to standard residential mortgages. Deposit requirements can be up to 45% for this type of mortgage, due to the higher risk of lending to borrowers of retirement age.

Care Home Mortgages for Commercial Purposes

commercial mortgage covers any type of building you want to buy for commercial purposes. Commercial mortgages usually last for 5 to 25 years, though there are some exceptions. More lenders have started offering commercial mortgages for care homes, but it can still be hard to find the best deal for your mortgage.

Commercial mortgages vary from residential mortgages in a range of ways. Most notably, you’ll often find that it’s harder to find a commercial mortgage with a fixed interest rate. Interest rates will also often be higher than for residential properties due to the higher risks inherent with business mortgages. However, you’ll often find that the interest rates are lower compared to business loans. This is because the property can act as security for a commercial mortgage whereas business loans do not have this same collateral.

How Do I Get a Commercial Care Home Mortgage?

Getting a commercial mortgage for care home properties can be difficult, as most lenders want to check that you’ve taken the proper steps to ensure your venture will be successful. The main elements considered for approval of a care home commercial mortgage:

Previous Experience

If you’re planning on operating and running the care home yourself, most mortgage lenders will want to see that you have suitable experience in the field. Normally, they’ll expect that you have two to three years of experience, as a minimum, in managing a property in the care sector.  You might also need to get a qualification approved by the Care Quality Commission. It can take a minimum of ten weeks to get a basic qualification from the CQC. Consider this well before you start applying for a mortgage.

If you don’t have this much experience, you might still be able to get a mortgage. Many lenders are willing to lend in this sector due to the growth rate in care homes. You may, therefore, be able to get a mortgage with less experience through a broker, but it could come with higher interest rates due to the perceived risk. Consider getting other suitable qualifications to show that you have the skills to properly run a care home.

Qualified Staff

If you’re planning to hire a manager to run the care home, the lender will want to see evidence of their qualifications and experiences. This is most easily proven if you are keeping the existing management team for the care home. If you are getting new staff for the business, you can show their experience and qualifications — usually to a minimum of an NVQ level 4 or higher within the care sector.

Care Quality Commission Reports

A report rating from a regulatory body is a requirement for every nursing or care home in the UK. Depending on where the care home is, this could be from:

  • The Care Quality Commission (England)
  • The Care Inspectorate (Scotland)
  • The Care and Social Services Inspectorate (Wales)

This rating is based on how well the care home is providing support to its residents. If you’re buying a care home that is already in use, your lender will want to see the CQC rating as this will directly play into the potential returns for the care home. If there is a low rating, you might have to invest more money to improve it before making a profit, or you might lose customers. Most lenders will only offer a mortgage on a care home that has a regulatory rating of "good" or better.

Occupancy Rates

Lenders will want to see recent occupancy rates. Low occupancy rates or a high turnover of residents could suggest there are problems with the care home, which could impact profits. If your profits are forecast to be low, it could be considered too much of a risk for lenders to take on. If the occupancy rates are low due to a specific reason which can easily be fixed, you can convince a lender how you will make the care home profitable. However, some issues cannot be easily fixed, such as care homes in remote locations, or facilities with very bad reputations.

Trading History of the Care Home

A mortgage lender will also want to see the actual trading history and financial records for the care home. You’ll usually be expected to get trading records and accounts for the previous two to three years.

If you’re unable to get this length of proof, or if the care home has poor profits, there are still options to get a mortgage. Lenders might be willing to lend on a property if you show that your application is otherwise well-planned, with proof of experience or trained management, as well as plans to improve the care home's profit. This might mean sharing your business plan and projections with the mortgage lender.

What Deposit is Needed for a Care Home Mortgage?

Most commercial mortgages require a larger deposit than standard residential mortgages. Typically, the minimum deposit for care home mortgages is between 20% and 40%. The better the profit projections of the care home, and the better you meet the other criteria, the lower you can expect your maximum deposit to be. On the other hand, if you’re looking at buying a care home with poor occupancy rates, ratings, or short trading history, you may have to pay a higher deposit.

Your credit history and the history of your other business ventures can also factor into the deposit size. If you’re considered less of a risk to the lender, the deposit size required can be lower than average.

Is It More Difficult to Get Care Home Mortgages in London?

Most lenders that offer commercial mortgages are willing to lend against care homes in London. Getting a care home mortgage in London is the same as getting a mortgage in another part of the UK. However, you should be aware that the higher costs in London can mean that mortgage lenders want to see higher profits or a longer trading history for the care home. Expect to receive a higher interest rate, too.

Repayment Care Home Mortgages VS Interest-Only Care Home Mortgages

As with many other commercial or buy-to-let loans, some lenders will offer interest-only lending on care homes, alongside standard repayment types. An interest-only loan means that you only pay off the interest each month. At the end of your mortgage term, you’ll be left with the original loan amount still to pay off, at which point you can either cover this cost or sell the property.

For a repayment loan, you’re making payments towards the original principle of the loan as well as your monthly interest. This type of loan can be preferable to lenders, though it will depend on the exact details of your intended purchase.

How Long Does It Take to Get a Care Home Mortgage?

Getting a mortgage for a care home can take longer than for a standard residential property. This is due to the additional checks that need to be done, such as checking your business plan, the records of profits from the care home, qualifications of the management, and more. It could take anywhere between three and seven months to get a mortgage approved for a care home. It’ll be quicker if you have a proven record of other care home purchases that have been fully repaid. If it’s your first care home mortgage, the process could take longer.

What Might Prevent Me from Getting a Care Home Mortgage?

There are several things that can make it more difficult to get a mortgage for a care home. For example:

Bad Credit History

If you have a poor credit history, you’ll often find that it’s harder to get any type of mortgage. This can particularly be a problem if you have defaulted on similar mortgages in the past.

Lack of Experience

If you have no experience in running a similar business, some mortgage lenders might not want to risk accepting your application. You can get around this with additional preparation and by getting the help of people with more experience. Even if you have experience in another field of business, lenders may not be willing to accept this, as care homes are a very specific type of business.

Low Affordability

Mortgage affordability for commercial properties is typically based on the projected profits of the business. This will usually need to be if you’re struggling to get a care home mortgage due to the above, one of our experienced brokers can support you to find specialise lenders that can help.

Other Options to Buy a Care Home

Getting a commercial mortgage for a care home is one of the simplest ways to finance the purchase, but there are other ways if you find that you cannot get the mortgage type that you need.

Buying a Care Home with a Bridging Loan or a Short-Term Loan

bridging loan or a short-term loan, is a type of commercial loan that you can use to buy a care home in place of a mortgage. These loans are designed as a 'bridge' to cover the time between your purchase and the next step. They’re typically much shorter in length than mortgages, usually from 12 to 60 months.

Most lenders will want to ensure that there’s a reasonable and suitable exit once you reach the end of the loan. These short-term loans are typically most appropriate for clients who don’t have any history and once you’ve built up a period of successful trading, you’ll be able to refinance onto more favourable terms.

Buying a Care Home with Development Finance

Development finance might be appropriate if you intend to build a care home or convert a building into a care home. You could also use it if you intend to buy a care home that cannot be used until it has been refurbished or reconstructed. Development finance can be complicated since the payments are typically only released as you reach certain stages of the project.

In many cases, funding will not be released until you complete the indicated stage of the project. For example, you only receive the money to cover the building of foundations once the foundations are laid and approved by a surveyor. This means that you might have to get some kind of bridging finance or business loan in order to cover the initial stages of the project. In order to get development finance, you’ll need to have a very thorough plan in place for how to approach the project, as well as projections of your eventual profits. You’ll probably also need experience in running care homes and other similar businesses.

Care Home Mortgage Insurance

Care home mortgage lenders require you to have adequate insurance for the care home. This could include insurance for the building, business, and liability. This is to make sure that your business cannot go bankrupt due to unforeseen circumstances, as this presents a large risk to lenders.

How a Mortgage Broker Can Help You Get a Care Home Mortgage

Commercial mortgages are less readily available than residential mortgages and there are additional requirements in place for these. This can make it harder to find the right mortgage for your needs. As an experienced mortgage broker, we can get you access to specialist lenders, who may not advertise to members of the public directly.

Care Home Mortgages: The Bottom Line

Getting a commercial mortgage to run a care home requires a very thorough plan for how you intend to run the care home business. You’ll need to show that you or your staff have the appropriate qualifications and experience to make sure that the business will be profitable. Getting a mortgage for a care home with low occupancy, low ratings, or other problems can be more challenging, but there are specialist lenders who can help with this.

Here at John Charcol, we have expert brokers with experience in commercial mortgages for care homes. We can help you get access to a wider pool of lenders, making sure that you can get an application accepted. Get in touch today to see how our expertise can start you on your venture into buying a care home.

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