How to value a care home: methods, adjustments and selling
A care home is normally valued as a trading business, not as a building. A specialist valuer estimates the profit a reasonably…
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Care home mortgages: how lenders size, price and structure them
How care home mortgages work: trading valuations, earnings-based loan sizing, covenants tied to occupancy and CQC ratings, and repayment structures.
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In short
A care home mortgage is a commercial mortgage secured on a trading care home, used to buy, refinance or raise capital. Lenders size the loan on two tests: a percentage of the specialist trading valuation and how comfortably the home's earnings cover the repayments. Occupancy, fee mix, staffing costs and the CQC rating drive both tests, and the facility usually carries covenants that the home must keep meeting for the life of the loan.
This page explains the long-term debt that sits under most care homes: what a lender is really lending against, how the amount is worked out and the conditions that come with it. It is for owner-operators refinancing or buying, groups adding homes, and operators replacing short-term debt with a term facility. Smart Funding Solutions is a broker, not a lender: we search our panel of 300+ lenders, including healthcare teams at banks and specialist property lenders, for facilities from around £10,000 to £500,000+, with larger facilities available in suitable cases. It sits within our care home finance section, alongside our guide to buying a care home, which covers the purchase process itself.
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Repayment structures
Terms are long compared with most business borrowing, reflecting the life of the property, with the exact maximum depending on the lender. Within that, the shape of repayments matters as much as the amount:
01
Capital and interest
over the full term, which reduces debt steadily but takes the most cash each month.
02
An initial interest-only period
, useful after a purchase or extension while occupancy builds.
03
Part repayment, part interest-only
, where a portion is amortised and the rest is repaid at the end or refinanced. We used this principle for a split-structure facility for an established brokerage, putting £78,000 on a five-year repayment basis and £72,000 on interest-only.
04
Fixed, variable or hedged rates
Variable facilities usually move with the Bank of England Bank Rate or a similar benchmark. Fixing gives certainty on the largest cost after wages, but usually brings break costs if you sell or refinance early.
Ownership structures lenders see
01
Owner-operator
One company owns the building and runs the home. Simplest to lend to.
02
Property company and operating company
One company holds the freehold, another runs the service under a lease. Lenders usually want security over the property company and guarantees from the operator, so the lease terms and rent must be realistic.
03
Leasehold operator
With no freehold, borrowing is usually a smaller secured business loan against the business rather than a mortgage.
04
Groups
Several homes may be cross-secured, which can raise the total available but means one weak home affects the rest.
Why a care home is not an ordinary commercial property
A warehouse is valued on what a tenant would pay to occupy it. A care home is valued as an operating business: the building is specialised, registered for a specific use, and its worth depends on the residents, the staff team and the regulatory standing of the service inside it. If the home closed, the building would be worth far less, perhaps only its value for conversion to another use.
That is why care home lending is a specialist corner of commercial mortgages. A general commercial lender may ask for a vacant possession valuation and lend a small proportion of it. A healthcare lender will lend against the trading valuation, but will underwrite the business as closely as the bricks.
Covenants and ongoing conditions
Unlike a simple loan, a care home mortgage usually comes with conditions that are tested throughout its life. Common ones include a minimum level of earnings cover, sometimes a maximum loan-to-value tested on revaluation, a requirement to send quarterly management accounts and occupancy figures, and an obligation to tell the lender promptly about inspections, enforcement or safeguarding concerns. Some facilities treat a serious regulatory downgrade as a trigger for review. Read these clauses before signing: a covenant set too tight can turn a temporary dip in occupancy into a default.
Risks and trade-offs
The home is the security, so persistent arrears can end with the lender appointing a receiver. Directors are often asked for personal guarantees, at least for smaller groups. Covenants create risk even when every payment is made. Interest-only portions leave a balance to refinance later, when lending conditions may be tighter. And over-borrowing on a strong valuation leaves no headroom for the next round of wage increases or a fire safety upgrade. A smaller loan with a longer interest-only period is sometimes a better answer than the maximum on offer.
Underwriting
How lenders assess how much to lend
The loan offered is the lower of two answers.
01
The value test
A specialist valuer reports on the home's market value as a fully equipped operational entity, based on sustainable earnings and comparable sales, and usually also on a vacant possession or alternative-use figure. Lenders typically lend a proportion of the trading value, more for established operators with purpose-built homes and less for first-time owners or older converted buildings. Our guide on how to value a care home explains how those figures are reached.
02
The earnings test
The lender takes the home's earnings before interest, tax, depreciation and rent, deducts a realistic cost of management if the owner works in the business, and checks that what remains covers the annual interest and capital repayments by a comfortable margin. In practice this second test often decides the amount. A home with a good valuation but thin margins, perhaps because of heavy agency use or low council fees, will be limited by cover, not value.
03
The operator behind the numbers
Both tests are then read against who will run the home. Lenders look at the owner's or group's track record in care, whether the provider and the registered manager are already registered with the CQC for this location, and how the home has been managed through its last inspection. An experienced operator with a settled manager is usually offered a higher proportion of value than a first-time owner, even on the same building and the same figures.
Checklist
Documents you will need
- Three years of accounts and current-year management accounts
- Monthly occupancy and a resident schedule showing fee source and weekly rate
- Payroll summary, agency spend and staff turnover figures
- Latest CQC report and any action plans
- Property details: title, floor plans, room schedule and recent capital spending
- Existing facility letters and the latest covenant compliance figures
- Personal asset and liability statements for directors or guarantors
Side by side
Compare your options
How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.
| Option | How you repay | Security | Often used for |
|---|---|---|---|
| Unsecured business loan | Fixed instalments, usually monthly | No charge over assets; a personal guarantee is usually required | Growth, stock, tax bills and cash flow |
| Secured business loan | Fixed instalments, often over a longer term | A charge over property or other assets | Larger sums, property and refinancing |
| Revolving credit facility | Interest on what you draw; repay and redraw | Varies by lender and case | Recurring or uneven cash flow gaps |
| Merchant cash advance | A share of future card takings | No charge over assets | Card-taking businesses with uneven months |
| Asset finance | Regular payments over the life of the asset | The asset being financed | Equipment, vehicles and machinery |
| Invoice finance | Settled as customers pay their invoices | Your unpaid invoices | Businesses waiting on customer payment |
General information only. Every lender has its own criteria, and all finance is subject to status.
What moves the terms up or down
| Factor | Stronger position | Weaker position |
|---|---|---|
| Occupancy | Consistently high over two or more years | Recent fall, or high only after a short recovery |
| Fee mix | Healthy private self-funder share; nursing contributions where relevant | Almost entirely one local authority at its standard rate |
| Staffing | Stable team, low agency spend | High agency use or reliance on a small number of sponsored workers |
| CQC rating | Good or Outstanding, no enforcement history | Requires Improvement or worse, open actions |
| Building | Purpose-built, single en-suite rooms, recent investment | Converted house, shared rooms, deferred maintenance |
| Operator | Multi-home track record | First home, no sector experience in the team |
The CQC ratings carry particular weight because a downgrade quickly affects referrals and therefore income.
The broker’s view
How we arrange a care home mortgage
We start with the home's figures and work out both lending tests before approaching anyone, so you know which constraint applies. We then take the case to lenders on our panel suited to the home's size, rating and ownership, compare the covenant packages as well as the pricing, and manage valuation and legal work through to completion. If a home needs time to stabilise first, a bridging loan followed by a term facility may fit better; our care home refinance page covers moving existing debt. The lender makes the decision. It is free to enquire; any broker fee is disclosed separately before you proceed.
FAQs
Questions clients ask
Can I get a care home mortgage for a home that is not yet trading?
Not usually on trading terms, because there are no earnings to underwrite. New builds and conversions are funded with care home development finance, then refinanced onto a mortgage once occupancy and earnings are established.
Will a lender take a second charge behind my existing care home mortgage?
Some will, if the first lender consents and earnings cover both loans. Many healthcare lenders prefer a single facility, so raising extra capital often means refinancing the existing debt into a larger loan.
Do children's homes use the same kind of mortgage?
The principles are similar, but children's homes are smaller, regulated by Ofsted and funded by placement fees, so lenders assess them differently. See children's care home finance.
How long does a care home mortgage take to arrange?
A care home mortgage usually takes longer than a standard commercial mortgage, because the lender needs a specialist trading valuation and reviews the business as closely as the property. Legal work on title, the registration position and any existing charges adds further time. Having three years of accounts, monthly occupancy figures, the fee mix and your latest inspection report ready at the start helps keep the timetable moving.
Can a care home mortgage release capital to fund an extension?
Yes, an owner with equity in a trading home can often use a care home mortgage or refinance to release capital for an extension, new bedrooms or remodelling. Lenders size the loan on the current trading valuation and how comfortably earnings cover repayments, so the extra borrowing must still pass both tests. Larger building projects may suit staged funding instead; see our page on care home development finance.
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