Despite much discussion of the volatile economic environment at the recent Healthcare Summit (London) on 16 October 2025, which brought together industry leaders to discuss the challenges and opportunities facing the care home sector, there is increasing interest in the sector from a growing pool of lenders. The private care home market is a vital part of the UK's social infrastructure. With an ageing population and the NHS under increasing pressure, private care home operators have stepped into the gap, and the supply/demand imbalance in elderly care makes it a compelling lending proposition. As development costs rise and pressure on value-to-cost ratios shows no sign of abating, long-term businesses will require robust planning and sophisticated financing solutions.
Market overview
The care home sector has an estimated annual value over £26 billion1 but is diverse and highly fragmented. The market comprises a mix of small independent care homes alongside larger multi-home groups. Underpinned by demographic necessity, demand for care home services is robust and resilient.
Care homes operate within a comprehensive regulatory framework that requires bespoke diligence from a lender perspective. The Care Quality Commission (CQC) monitors care homes to ensure that they meet the required quality and safety standards in terms of the care being provided. Local authorities also play a crucial role, commissioning services and conducting monitoring visits under the Care Act 2014. However, experience on the ground is fraught – anecdotally we hear that care homes typically wait four years between CQC inspections on average, and there is no mechanism to request or expedite an inspection, which means an improved offering may struggle to demonstrate improvement after an unsatisfactory inspection. From a lender's perspective, this unique regulatory and operational environment requires a careful approach to transactions and input from specialist advisers with an understanding of the regulatory regime and the practical challenges. From a borrower's perspective, selecting the right lender is key.
Deal structure
2Multi-home care businesses are typically structured with a property company (Propco) and an operating company (Opco) for each care home, ring-fencing each care home to mitigate the risk of insolvency. If all companies are within a single corporate group, lenders typically lend to the Propco, taking security over their assets (including the property), the shares in the Propco and Opco, and the Propco’s rights under the Opco lease. However, there are numerous variations possible and understanding the underlying business and carefully structuring the deal remains crucial. An Opco will have employees, raising potential TUPE obligations, pension commitments, and payroll responsibilities that can complicate restructuring scenarios. A Propco will usually have a lease in place with the Opco. Due diligence is essential and – in the current climate – increasingly involved and time-consuming; that should be factored in by both borrower and lender teams.
Impact on loan documentation
Financing a trading care home (as opposed to pure development lending) requires documentation that goes beyond traditional real estate finance and addresses the nuances of the operating businesses. Regular access to information is key for lenders: there will be an obligation to share CQC reports and notify the lender of any anticipated issues. A loan agreement will also usually contain covenants which include an obligation for the care home to retain a minimum rating of "good" for CQC purposes. A downgraded rating may be an event of default. Events of default should cover loss of authorisation and inadequate ratings, but the practical limitations of the CQC regime will need to be considered and factored in.
Financial covenants will go beyond standard loan-to-value ratios, including trading business metrics such as net asset multiples, EBITDA-to-total debt ratios, and debt service coverage ratios. These often test current value, gross development value, and "mature" value—representing fully registered facilities achieving reasonable occupancy levels.
Where funding is limited to development or bridge finance, the relevant lender and the borrower will need to carefully consider the viability of the proposed exit (likely by refinance), since a developed care home will not be straightforward to enforce against in a worst-case scenario.
Enforcement
Enforcement in the care home sector can be complicated. Stakeholders include vulnerable residents (who have the benefit of legal protections such as the Care Act 2014), the CQC, as well as the interests of employees, suppliers, and HMRC.
A consensual sale or transfer is usually preferable, minimising disruption. Receivership is less viable, as trading cannot continue and the receiver will not have the power to engage with the CQC or local authorities. There is a real risk of closure and loss of value. On the other hand, administration, particularly at holding company level, will be less disruptive for stakeholders and allow for business continuity during administration. Insolvency practitioners with sector experience are invaluable in these circumstances.
Conclusion
Care home finance offers attractive opportunities for lenders, but demands a tailored approach to deal structuring, due diligence, and documentation. Advisers who understand the regulatory landscape and have experience in managing the operational and structural complexities, as well as in enforcement, are key to ensuring successful transactions in this sector.