Care Home Mortgages London

Underwriting a London care home or medical commercial mortgage

London healthcare property splits into two very different lending conversations. Care homes are operational businesses with bed-by-bed economics and sit firmly in the trading-business world: CQC rating, occupancy, fee mix between private and local-authority funded residents, staffing cost and weighted-average bed value all feed the underwrite, and the cover test is EBITDA at 1.5 to 2.0x with LTV at 60 to 70%. Medical and dental premises route either as owner-occupier at EBITDA cover 1.3 to 1.5x and LTV to 75% on bricks, or as investment where there is a lease and a covenant to test on ICR.

Care home credit decisions turn on the CQC rating first and everything else second. Good or Outstanding is the threshold for mainstream appetite at standard LTV and pricing. Requires Improvement can still fund, but at the bottom of the LTV band, at the top of the rate band and only with a written remediation plan and evidence the operator is executing it. Inadequate is not fundable on mainstream desks until the rating recovers. Bed count matters too: operating leverage in care is brutal because staffing cost is largely fixed, so homes under 30 beds are materially harder to place and homes under 20 beds are declined by most high-street and challenger desks.

London adds two specific complications and one specific advantage. The complications are property cost and staffing cost, both the highest in the country, which compress EBITDA margin against an identical home elsewhere. The advantage is fee mix: London care homes, particularly in the outer boroughs with larger housing stock, often carry a higher private-pay proportion than the national average, and a private-pay-weighted fee mix lifts both the EBITDA multiple a valuer will apply and the LTV a lender will offer. Outer-borough stock in Bromley, Croydon, Greenwich and Hillingdon, generally converted large houses or purpose-built homes on plots that inner London no longer has, is where most brokered London care-home lending sits.

The Harley Street and Marylebone medical cluster is a distinct market with its own logic. Consulting rooms and clinical suites in Marylebone and the surrounding W1G, W1H and W1U postcodes trade at capital values that have very little to do with the clinical income they produce, because much of the stock is long-leasehold in institutional ownership and the underlying value is West End property. Lenders here are usually underwriting the practice as an owner-occupier covenant against a high-value asset, with the leasehold structure and unexpired term the critical items. A short unexpired lease with no realistic extension route can stop an otherwise excellent deal, which is why we look at the title before the accounts on Harley Street cases.

Finance structures for London healthcare

Care homes route through trading-business mortgages on EBITDA, occupancy and CQC rating. Smaller medical and dental premises route through the owner-occupier product on EBITDA cover. Investment routes through a standard commercial investment mortgage where there is a covenant tenant, most often an NHS-backed lease on a GP surgery.

Lender appetite for London healthcare

Care homes are led by Shawbrook, Cambridge and Counties, Hampshire Trust and OakNorth at 7.5 to 9.0% pa at 60 to 70% LTV, with CQC Good or better effectively a precondition. Dental is covered by Hampshire Trust, Allica and Together, with NHS contract value treated as supporting security by the specialist desks, and pricing at 6.5 to 8.0% pa on the owner-occupier route for established principal-led practices. GP surgeries attract the best pricing in the sector: NatWest, Lloyds and the challengers all compete on a partnership purchase or on investment against an NHS-backed lease at 6.0 to 7.5% pa, because the implied covenant is about as strong as commercial lending gets. Pharmacy is well served across multiple lenders. Harley Street and Marylebone consulting suites go to lenders comfortable with long leasehold in W1, which in practice means Shawbrook, Cynergy Bank, OakNorth, Handelsbanken and the private-bank end of the market rather than the volume desks.