What does the care home sector look like for 2021 and beyond?
There were 703 million people aged 65 or over in the world in 2019 and the number of older people is projected to double to £1.5 billion in 2050, according to the United Nations. It is therefore clear that care homes for the elderly will be in high demand to cater for a growing population of people who are living for longer.
Elderly care homes can range in size and speciality, from homes offering palliative care for example, to homes with specialist dementia care facilities, and homes for those requiring elderly residential care. There’s a range of care facilities available for over 65s, including supported living and care villages that provide a community for residents.
It’s been well publicised that care homes have been under significant pressure since March 2020 as a result of the Covid pandemic and many homes have not allowed visitors for more than 12 months in an attempt to safeguard their residents.
The availability of funding for care homes has also tightened, given the risks of a Covid outbreak being high and potentially devasting, especially with High Street lenders. However, with many care home residents now being double vaccinated, the risk of significant outbreaks has been reduced and we have started to see lenders open their doors again to the healthcare sector. During the pandemic, newer lenders such as “Challenger” and “Fintech” Banks have been active, often taking a much more commercial view due to their specialist knowledge and understanding of the sector, as well as working with the British Business Bank (BBA) to deploy CIBLS, BBLS and RLS loans.
Typically, lenders will consider lending around 60%-70% LTV against the Open Market Value of the business on a standalone asset. Interest rates can vary depending on the lender, the type/size of home and the buyers experience. For existing operators looking to expand their care business, there could be several options to maximise lending capabilities.
Experience within the sector has always been key when it comes to securing finance for care homes. However, it’s clear that in this challenging climate, experience and expertise is even more crucial, not only to ensure high quality care is provided to residents but also to give confidence that the welfare of all staff is protected with robust Covid procedures. With rising costs of PPE and an increase in staff costs due to staff needing to self-isolate, care homes have been under a lot of pressure to keep residents safe and well, whilst ensuring their finance position remains sustainable. As soon as a Care Home who are short on staff are forced to use expensive Agency staff, this can cripple a business as this extra cost comes straight off the bottom line.
I have seen a divide within the sector over the past 18 months, with successful care homes continuing to trade strongly, whilst many of those that were struggling prior to March 2020, have sadly ceased trading. This presents an opportunity for those existing operators, with a proven track record of operating homes in a safe and financially responsible way, to expand and develop new sites. There are also opportunities for investors who want to assist existing operators in expanding, often by considering Asset Management angles for example.
I expect to see existing operators refinance over the next 5-years, as committed loan terms come to an end, where some high street lenders decide to no longer support the growing sector and as such have changed their policies and lending guidelines. However, there are numerous alternative lenders and Challenger Banks taking advantage of the opportunity in the sector, offering very commercial rates and terms to support SME’s and their proposed acquisition/expansion plans.
Overall, the elderly care market is a growing sector, with an ever-increasing elderly population who are living longer, fuelling an increasing demand. The Finance Industry is adapting to help savvy investors make the most of this growing opportunity but securing funding on a care home is rarely straight forward. It requires an experienced Debt Advisor that can match the requirements of an investor/operator, with the appetite and criteria of Lenders in a volatile Market. Quite often, the most commercial funding solutions are not obvious, so this is why the expert guidance of a specialist can be invaluable.