Dental Practice Mortgage

Commercial mortgages for dental practices explained

A dental practice commercial mortgage secures against the property itself: the freehold building or leasehold interest from which the practice trades. It is not a goodwill loan, equipment loan, or working capital facility. The commercial mortgage covers premises only, and goodwill is financed through separate arrangements.

Lenders underwrite dental practice mortgages differently from standard commercial lending because of NHS income. A UDA contract is, in practice, a government payment stream. Lenders familiar with the dental sector treat it accordingly, modelling DSCR against contracted UDA values rather than applying generic commercial income haircuts. This distinction is why the LTV available to an established NHS practice often exceeds what the same practice could access through a mainstream commercial lender.

The two main premises structures are freehold and leasehold. Freehold purchases are the most common route for long-term ownership and attract the highest LTV. Leasehold financing is possible but requires careful review of the remaining lease term: most lenders require the unexpired term to exceed the mortgage term by a meaningful margin, and assignment clauses and ground rent obligations all affect the underwriting position.

How much can a dental practice borrow?

Borrowing capacity is set by two factors working together: the value of the property and the financial performance of the practice. Lenders apply LTV limits to the property and assess DSCR to confirm the practice can service the debt.

Most specialist healthcare lenders set a minimum loan of £250,000. Maximum loan sizes scale with practice strength and property value. Some lenders structure tiered LTV policies: for example, higher LTV for loans under £500,000, stepping down incrementally for larger amounts. The specific structure depends on the lender and the practice profile.

Income assessment centres on EBITDA (earnings before interest, tax, depreciation, and amortisation), which lenders treat as the true profit available to service debt. Most require a Debt Service Coverage Ratio of at least 1.25x, meaning practice EBITDA must cover annual mortgage payments by at least 25%. Strong DSCR positions enable maximum borrowing capacity; weaker positions reduce LTV or require a larger deposit.

Standard documentation requirements: two to three years of filed accounts, current management accounts, NHS contract documentation including UDA values and delivery history, and bank statements showing cash flow patterns. CQC registration and GDC membership are confirmed as part of the application process. If CQC registration is not yet in place, allow 10 to 12 weeks for this to be processed alongside the mortgage timeline.

LTV up to 100%: how it works and who qualifies

100% LTV on freehold dental surgery premises exists because specialist lenders treat NHS income as near-guaranteed. A practice delivering consistently against its UDA contract year after year presents very low income risk. Where mainstream commercial lenders see an owner-managed business, specialist healthcare lenders see a government-contracted healthcare provider.

Qualifying criteria for 100% LTV

NHS contract with majority income from UDA activity, with at least two to three years of consistent delivery at or above contracted levels. Clean personal credit history with no CCJs or defaults. GDC registration and current CQC compliance. A personal guarantee from the principal or directors is standard at maximum LTV; some lenders also require a debenture over company assets or a charge over additional property. The practice must be an established trading entity: 100% LTV is not typically available for new practice startups.

These ranges reflect general market conditions. Individual lender criteria and practice-specific factors determine actual offers.

NHS income and how lenders assess it

Lenders evaluate UDA contracts across several dimensions: the annual contract value, historical delivery percentage, clawback risk, and contract renewal likelihood. Consistent delivery at or near contracted UDA levels demonstrates operational competence and removes the clawback risk that concerns lenders most.

Clawback provisions require practices to return funds for undelivered UDAs. Strong delivery records remove this as a material risk. Lenders look for 12 to 24 months of UDA performance history at the application stage; successive renewals or long-running contracts signal further stability.

DSCR is modelled against NHS contract income directly. Because UDA payments arrive on a predictable monthly schedule, lenders can project repayment capacity with much greater confidence than they can for private income, which may vary seasonally or depend on patient volumes that are harder to verify.

Mixed NHS and private income

Where practices draw income from both NHS contracts and private patients, lenders assess each stream separately. NHS income receives full recognition. Private income is typically assessed with a haircut of 10 to 30% depending on lender policy, the income type, and the stability evidence available.

Capitation income from schemes such as Denplan or DPAS receives more favourable treatment than pure fee-per-item private work. The predictable monthly payments resemble NHS income characteristics, and lenders with dental sector experience recognise this distinction.

For competitive LTV, NHS or capitation income representing at least 50% of total practice revenue is the threshold most specialist lenders work around. Below this, LTV reduces and the deposit requirement increases, though financing is still achievable through the right lender.

Goodwill vs freehold: what you are actually financing

Commercial mortgages cover the property: the building, the land, and permanent fixtures. They do not cover goodwill, which includes the patient list, the practice's trading reputation, clinical equipment, and the business as a going concern. These are separate assets requiring separate financing.

Goodwill loans typically run at 70 to 90% LTV with shorter terms of 5 to 15 years. Some lenders offer both a commercial mortgage and a goodwill loan as part of a coordinated acquisition package; others require separate providers. Where the two run concurrently, total debt service across both facilities needs to satisfy DSCR requirements on the practice EBITDA.

How acquisition costs typically break down

For a dental practice acquisition, the total purchase price will generally split broadly as: 60 to 80% property value, 15 to 30% goodwill and patient list, and 5 to 10% equipment and fixtures. These proportions vary significantly by practice type, location, and NHS mix. Understanding this split is essential for structuring both the commercial mortgage and any accompanying goodwill finance correctly from the outset.

Costs involved in buying your dental surgery

The purchase price is only part of the total outlay. Costs beyond the property price include: lender arrangement fee (typically 1 to 2% of the loan amount); commercial property valuation fee (typically £2,000 to £4,000 for a dental surgery, more for larger multi-surgery premises); legal fees for your solicitor and the lender's solicitor; Stamp Duty Land Tax on commercial property above £150,000 (2% on the portion from £150,001 to £250,000, 5% above £250,000); and CQC compliance verification costs if required.

Mortgage interest on commercial premises used for business activity is generally deductible as a business expense, which reduces the net cost of ownership. Your accountant should confirm the specific treatment for your practice structure.

FD Commercial charges no broker fee on most commercial mortgage cases. We are paid by the lender on completion.

Case study: £780,000 dental surgery purchase at 72% LTV

Frequently asked questions