How to Get a Mortgage for a Care Home
Investing in a care home can be a rewarding venture, both financially and personally.
With an ageing population and increasing demand for high-quality care facilities, the care home sector continues to grow, making it an attractive option for commercial investors.
However, purchasing a care home is very different from buying residential property. It requires a specialist mortgage, strict regulatory approvals, and a clear understanding of the property classification system, with experience required if you plan to run the home.
Care homes are classed as C2 properties, which means they fall under a different planning and financing category than standard residential homes.
This distinction is important because it affects how lenders assess your mortgage application and what type of finance you will need.
Whether you are buying your first care home or expanding your portfolio, this process can be complex. This is where Kerr & Watson can make a difference, searching for the right lender for you.
Understanding C2 Property Classification
In England, the C2 property classification is used for Residential Institutions, which cover a range of buildings designed to provide both accommodation and care. This includes uses such as hospitals, nursing homes, residential care homes, boarding schools, residential colleges, and training centres.
The key difference between C2 and C3 (standard dwellinghouses) is that C2 properties are specifically for groups of people who require care, support, or medical treatment. The accommodation is not treated as independent housing units like flats or houses.
Examples of C2 Properties
- Hospitals and nursing homes
- Residential care homes for people needing care due to age, disability, or health conditions
- Boarding schools and residential colleges
- Residential training centres
- Secure residential institutions such as prisons or detention centres (classified as C2A)
Key Characteristics of C2 Properties
- Residential accommodation and care: The primary function of a C2 property is to provide a place for people to live while also receiving care, support, or treatment.
- Different from standard residential housing: Unlike C3 properties, which are individual homes, C2 properties are for collective living with care provisions and do not count as independent dwellings.
Because care homes fall under the C2 classification, they require specialist commercial financing, not standard residential mortgages. This is why it’s highly recommended to work with a broker who understands the specific requirements of this sector.
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Why the care home market is attractive
The demand for care homes is rising steadily as more people require specialist care in later life. This growth has created strong opportunities for investors, with many care homes generating stable income streams and long-term profits.
High occupancy rates, increasing property values, and the essential nature of care services mean lenders often view this sector positively. However, the C2 classification adds complexity to the process, as lenders will require more information about both the property and your experience as an operator.
Types of care homes you can finance
Lenders provide finance for a variety of care homes. Understanding the type of C2 property you are investing in will help determine the right mortgage product.
- Elderly care homes – Providing accommodation, daily living assistance, and in some cases nursing care for older adults. Some homes focus on specialist services such as dementia care.
- Children’s residential care homes – Providing accommodation and support for children with specific needs, usually regulated by OFSTED.
- Specialist care homes – Focusing on specific services such as disability support or complex medical care.
Each type of care home has different regulatory requirements and risks, which lenders will take into account when assessing your mortgage application. It may also be that the care home is already occupied by a company and you wish to buy the building to keep them as a commercial tenant. There are lenders that can consider this subject to full underwriting of both the investor and the tenant.
Key factors lenders consider
Securing finance for a C2 property such as a care home involves more than simply showing affordability. Lenders look at a range of factors to determine whether your application meets their criteria. Understanding these factors will help you prepare a strong case.
Experience in the sector
Your experience plays a crucial role in the success of your mortgage application. Lenders want to see that you have the skills and knowledge to run a care home effectively.
- High Street lenders usually require at least two years of experience in owning or managing a care home, but it varies case to case.
- Challenger banks and specialist lenders may be more flexible but will still want evidence of relevant industry experience.
- If you are a first-time operator, demonstrating previous work in the medical or care sector can improve your chances.
Occupancy rates
High occupancy rates indicate strong demand and a well-managed facility. Lenders view this as a positive sign of future profitability.
Low occupancy rates can raise concerns, as they directly impact income and affordability. Poor ratings from the Care Quality Commission (CQC) or a less desirable location can also affect occupancy levels. If occupancy is low, you will need a detailed plan to show how you intend to improve it.
Regulatory ratings
Regulatory bodies such as the CQC in England, the Care Inspectorate in Scotland, and the CSSIW in Wales oversee the quality of care provided.
A care home with a good or outstanding rating is more likely to secure favourable mortgage terms. Conversely, a poor rating can make lenders cautious, as it suggests operational challenges and reputational risk. If you have a track record of improving ratings or turning around underperforming homes, this can help reassure lenders.
Financial performance
Lenders will review the care home’s trading accounts to assess affordability and sustainability.
- Strong historical performance is a major advantage.
- If previous performance has been poor, you will need a detailed business plan with realistic projections showing how you will improve profitability.
This is especially important when purchasing a care home that requires significant changes to management, staffing, or facilities.
Expanding your care home portfolio
For existing operators, growth often involves purchasing additional properties or refinancing current homes to release capital. Lenders will evaluate your entire portfolio, considering both the performance of your current homes and the potential of the new acquisition.
If you are buying a care home that needs improvement, your track record in turning around struggling facilities will be a key factor in the decision-making process.
Conclusion
Investing in a care home is a significant opportunity, but it comes with challenges. Because care homes are classified as C2 properties, they require a specialist mortgage and a clear understanding of regulatory and operational requirements. From planning permissions to lender criteria, there are many factors to navigate.
It may be that you are buying the building as an investment with a company already running the home on a daily basis. This may be possible to finance with the right commercial mortgage.
Whether you are purchasing your first care home or expanding an established portfolio, our team is here to guide you every step of the way. Contact Kerr & Watson today to discuss your plans.
