Care Home Finance

How does care home finance work?

Care home lending is structured as a commercial mortgage secured against both the property and the business operating from it. Unlike standard commercial property where LTV is assessed purely on the bricks-and-mortar valuation, care home lenders also assess the trading performance of the business using EBITDA (earnings before interest, tax, depreciation and amortisation). The loan is typically structured as a multiple of stabilised EBITDA combined with an LTV cap on the property valuation, whichever produces the lower figure.

Affordability is assessed using the Debt Service Coverage Ratio (DSCR). Lenders require that the home's net operating income covers annual mortgage repayments at 130 to 175%, depending on the lender and the LTV requested. Income is assessed using stabilised EBITDA from the most recent two to three years of trading accounts. Local authority fee income is assessed at face value while private-pay income may receive a small haircut depending on occupancy stability.

The fee income mix matters. A home with a high proportion of private-pay residents generates stronger margins than one reliant entirely on local authority fees, and lenders price this into both the LTV and the rate. Homes with 50% or more private-pay residents consistently achieve better terms.

In most cases we arrange, the biggest constraint is not the LTV or the rate. It is the valuation. Care home valuations are conducted by specialist healthcare valuers who assess the property as a going concern, not just as bricks and mortar. A home valued at £2 million as a property may be valued at £2.8 million as a trading business, and the loan amount is typically based on the going concern figure subject to the LTV cap.

What LTV is available on a care home mortgage?

Most care home lenders offer 60 to 70% LTV on a standard basis, with up to 75% available for homes with strong CQC ratings, high occupancy and a proven trading history. The LTV is assessed against the lower of the property valuation and the EBITDA-based going concern valuation.

These ranges reflect general market conditions as of 2026. Individual lender criteria, the home's income history and property type determine actual offers.

What are the rates for care home finance?

Care home mortgage rates typically range from approximately base rate plus 1.75% for prime cases to base rate plus 3.5% for higher-risk profiles. With the Bank of England base rate at 3.75% as of April 2026, that translates to annualised rates of roughly 5.5% to 7.25% for most borrowers. Fixed rates are available and are priced at the time of application.

Rates are higher than standard commercial mortgages because lenders price in the operational risk inherent in running a regulated care business. CQC compliance, staffing costs, local authority fee reviews and occupancy fluctuations all contribute to the risk assessment. Lower LTVs, stronger CQC ratings and higher private-pay ratios all reduce the rate.

Arrangement fees typically range from 1 to 2% of the loan amount. Valuation fees for care homes are higher than standard commercial properties because a specialist healthcare valuer assesses both the property and the business as a going concern.

What CQC rating do you need for care home finance?

Most specialist care home lenders require a CQC rating of Good or Outstanding. This is non-negotiable for the majority of term lending products. FD Commercial only arranges care home finance for homes with a Good or Outstanding rating.

Homes rated Requires Improvement are difficult to fund through standard care home mortgage products. Lenders view a RI rating as a signal of operational risk: potential staffing issues, compliance failures or management weaknesses that could affect income stability. Some specialist lenders will consider RI-rated homes, but at significantly reduced LTVs (typically 50% maximum) and higher rates.

Inadequate-rated homes are not fundable through standard care home mortgages. Bridging finance may be an option for operators looking to acquire an Inadequate-rated home with a clear turnaround plan, repaying the bridge once the CQC rating improves to Good.

For acquisitions, the existing home's CQC rating transfers with the property, but the new operator must register separately with the CQC. This process takes approximately 10 to 12 weeks and should be started before the mortgage application to avoid delays at completion.

Can first-time operators get care home finance?

Yes. Lender appetite for first-time care home operators has grown significantly. According to Christie & Co, first-time buyers accounted for 17% of UK care home transactions in H1 2025, up from just 4% in 2023. The market is becoming more accessible, but the application must be well prepared.

What lenders want to see from a first-time operator:

What we have seen over the last few years is more first-time operators entering the market with backgrounds in nursing or care management. The cases that fund most smoothly are those where the buyer has worked in the sector and is stepping up to ownership, not those where ownership is purely an investment play.

What do lenders assess in a care home mortgage application?

Care home underwriting goes deeper than standard commercial mortgage assessment. Lenders are lending against a regulated business, not just a property. The key areas of assessment are:

Trading performance. Two to three years of filed accounts showing stabilised EBITDA. Management accounts if the most recent year-end is more than six months old. Lenders normalise figures to strip out owner drawings, one-off costs and non-recurring income. Agency staffing costs are scrutinised closely because they inflate operating costs and reduce the margin of safety.

CQC compliance. The most recent CQC inspection report, including all five domains: safe, effective, caring, responsive, well-led. A Good overall rating with a Requires Improvement in any single domain may still be acceptable to some lenders, depending on the nature of the shortfall and the action plan in place.

Occupancy. Current occupancy, trailing 12-month average and trend direction. Lenders typically want to see 80% occupancy or above. Below 75%, income sustainability becomes a concern and LTV is reduced. A home with 90%+ occupancy and a waiting list is a very different proposition from one running at 70% with no enquiry pipeline.

Fee income mix. The split between local authority-funded residents and private-pay residents. Private-pay fees are typically 40 to 60% higher than local authority rates, so a home with a strong private-pay mix generates materially higher EBITDA per bed. Lenders reward this with better LTV and rate terms.

Property condition. A specialist healthcare valuer assesses the physical condition of the home, including bedroom sizes, en-suite provision, communal spaces, fire safety compliance and condition of building services. Homes that do not meet current minimum room size standards (12 sqm for residential, 15 sqm for nursing) may receive a reduced valuation.

Operator experience. For existing operators: trading history, number of homes in the group, CQC track record across all sites. For first-time operators: sector background, registered manager credentials, business plan quality.

What types of care home can you finance?

FD Commercial arranges finance for care homes across the main categories of residential care, subject to the home holding a Good or Outstanding CQC rating and the loan exceeding £1 million.

Supported living and domiciliary care businesses are not covered under care home finance. These are operational businesses without the property security that care home lenders require. If you operate a supported living service and need property finance, a standard commercial mortgage assessed on rental income is typically more appropriate.

How do you apply for a care home mortgage?

Most care home mortgages complete within 8 to 14 weeks from formal application. The main variables are the valuation turnaround, the complexity of the accounts, and whether the buyer needs to complete CQC registration as a new provider.

Can you use bridging finance to buy a care home?

Yes. Bridging finance is a common route into care home ownership where the circumstances do not suit a term mortgage at the point of acquisition. Typical scenarios include:

Speed. A care home comes to market and the seller requires completion within four to six weeks. A term lender cannot meet this timeline, but a bridging lender can. You complete on the bridge and refinance to a term mortgage once the valuation and accounts are in order.

CQC rating improvement. The home is rated Requires Improvement. Term lenders will not fund it at that rating. You acquire on a bridge, invest in the improvements needed to bring the rating to Good, and refinance once the new CQC inspection confirms the upgrade.

Chain break. You are selling one care home and buying another. The sale is delayed. A bridge funds the purchase so you do not lose the acquisition, and is repaid when the sale completes.

Bridging terms for care homes typically run from 6 to 18 months at rates from 0.65% per month, with exit to a care home mortgage. The bridge is secured against the care home property. Some lenders will also accept cross-charges against other properties in the borrower's portfolio to improve LTV on the bridge.

What are the risks of care home finance?

Care homes carry specific risks that do not apply to standard commercial property investment. You need to understand these before committing to a purchase.

CQC downgrade risk. A drop from Good to Requires Improvement can trigger a covenant breach with your lender. Some loan agreements include a CQC rating floor as a condition. If the rating falls below that floor, the lender may require accelerated repayment or restrict further drawdowns.

Staffing costs. Care homes are labour-intensive businesses. Agency staffing costs can erode EBITDA rapidly, particularly for nursing homes where registered nurse cover is required around the clock. National Living Wage increases add a further annual cost pressure that is not always recoverable through fee increases.

Occupancy volatility. A sustained drop in occupancy directly reduces income. Unlike residential buy-to-let where a void is one unit, a care home running at 65% occupancy is still carrying the full staffing and overhead cost of the building. The breakeven point for most care homes is approximately 70 to 75% occupancy.

Local authority fee risk. Homes reliant on local authority funding are exposed to annual fee negotiation. Local authority rates have historically lagged inflation, squeezing margins. Private-pay homes are less exposed but still need to remain competitive on fees.

Capital expenditure. Regulatory standards evolve. Room size requirements, fire safety standards and accessibility obligations may require capital investment that was not budgeted at acquisition. A building survey by a specialist healthcare surveyor before purchase is essential.

Why use a broker for care home finance?

Care home lending is not a product you search for on a comparison site. Lender criteria vary significantly by CQC rating, operator experience, bed count, care category and geographic location. What one lender declines, another may fund at competitive terms.

FD Commercial has full access to market across specialist healthcare lenders, high street banks with healthcare desks, challenger banks and private debt funds. We understand how each lender assesses EBITDA, what DSCR thresholds they apply, and which lenders have appetite for first-time operators, nursing homes, or homes in specific regions.

Unlike most specialist care home brokers, FD Commercial does not charge a broker fee in most cases. We are paid by the lender on completion. On a £2 million care home acquisition, that saves you £20,000 to £40,000 compared to brokers charging 1 to 2% of the loan amount. That is capital you retain for staffing, refurbishment or working capital in the critical first year of ownership.

For first-time operators in particular, the application needs to be presented in a way that anticipates lender concerns. The business plan, staffing structure and cash flow projections need to be credible and detailed. We have seen cases declined by one lender and funded by another purely because of how the application was packaged.