Care home development finance explained
Building or converting a care home is funded differently from buying one. This guide explains how development finance is structured, what lenders advance, and why the demand backdrop is so strong.
Care home development finance funds ground-up builds and major conversions. Lenders typically advance up to about 60 to 70 percent of total cost, capped at around 60 to 65 percent of the gross development value or stabilised value, released in stages against monitored progress. Interest is usually rolled up rather than serviced, and the facility runs for around 24 to 36 months before being repaid by a sale or by refinancing onto a long-term commercial mortgage once the home is trading.
At a glance
- Loan to costAbout 60 to 70%
- Percentage of GDVAbout 60 to 65% of stabilised value
- Indicative rateAbout 9 to 12%
- Term24 to 36 months
- InterestUsually rolled up
- ExitSale or refinance to term debt
Ground-up and conversion
Development finance covers two main routes: a ground-up build of a new purpose-built home, and a conversion or major refurbishment of an existing building into a care home. Both are funded against cost and against the value the finished, trading home will have, rather than against current income, because at the start there is no trade. This is finance to build a care home as a business, not help for families paying for care.
How the facility is sized
A development lender looks at two limits and lends to the lower of them. The first is loan-to-cost, typically up to about 60 to 70 percent of the total project cost including land, build and fees. The second is a percentage of gross development value or stabilised value, typically around 60 to 65 percent, where stabilised value is what the home is worth once it is built and trading at mature occupancy.
| Measure | Indicative level |
|---|---|
| Loan to cost | About 60 to 70% |
| Percentage of GDV or stabilised value | About 60 to 65% |
| Rate | About 9 to 12% |
| Term | 24 to 36 months |
Drawdown, rolled interest and exit
The loan is not paid out all at once. It is released in stages against build progress, certified by a monitoring surveyor, so the lender's exposure tracks the value being created on site. Interest is usually rolled up and added to the loan rather than serviced monthly, which protects cash flow during construction and the fill-up period. The facility is then repaid at exit, either by selling the completed home or by refinancing onto a long-term commercial mortgage.
- Agree the facility against loan-to-cost and gross development value.
- Draw down in stages as the build progresses, certified by a monitoring surveyor.
- Roll up the interest rather than servicing it monthly.
- Open, register with the CQC and build occupancy toward a stabilised level.
- Exit by selling the home or refinancing onto a term commercial mortgage.
A new home does not fill overnight. Carterwood put the time to fill a new 70-bed home to stabilised occupancy at about 2.5 to 3.25 years, so the funding plan must carry the home through that ramp before the term refinance lands.
Why the demand backdrop is strong
The case for new care home development rests on a widening gap between an ageing population and an ageing building stock. The ONS projects the over-85 population to nearly double from 1.7 million to 3.3 million between 2022 and 2047. LaingBuisson reported that about 44 percent of capacity is not purpose-built, with stock replacement running at only 1 to 2 percent a year. Carterwood projected a shortfall of around 57,300 to 64,300 market-standard beds, and a far larger shortfall of around 221,600 to 228,600 en-suite wetroom beds, as at December 2024.
- ONS: over-85 population nearly doubling, 1.7 million to 3.3 million, 2022 to 2047
- LaingBuisson: about 44% of capacity not purpose-built, replacement only 1 to 2% a year
- Carterwood: shortfall of around 57,300 to 64,300 market-standard beds, December 2024
- Carterwood: shortfall of around 221,600 to 228,600 en-suite wetroom beds, December 2024
Lenders for development
Development of care homes is funded by lenders comfortable with the sector and with staged, monitored facilities, including Assetz Capital, Puma Property Finance, Shawbrook, OakNorth, Paragon and Ortus. We are not tied to any of them and place each scheme with the lender whose appetite and structure fit it best.
Care home development finance explained: common questions
How much deposit do you need for care home development finance?
Lenders typically fund up to about 60 to 70 percent of total cost, capped at around 60 to 65 percent of gross development value, so you should plan to contribute roughly 30 to 40 percent of cost as equity, sometimes partly satisfied by land value already owned.
How does care home development finance work?
It funds ground-up builds and conversions against cost and finished value. The loan is released in stages against monitored build progress, interest is usually rolled up, and the facility runs around 24 to 36 months before being repaid by a sale or a refinance onto a term mortgage.
What is GDV and stabilised value?
Gross development value is what the completed scheme is worth. For a care home that is closely tied to stabilised value, the value once the home is built and trading at mature occupancy. Development lenders cap the loan at roughly 60 to 65 percent of that figure.
How long does a new care home take to fill?
Carterwood put the time to fill a new 70-bed home to stabilised occupancy at about 2.5 to 3.25 years. The funding plan has to carry the home through that ramp-up before the long-term refinance completes.
Why is there demand for new care homes?
The ONS projects the over-85 population to nearly double from 1.7 million to 3.3 million between 2022 and 2047, while LaingBuisson reports about 44 percent of stock is not purpose-built and replacement runs at only 1 to 2 percent a year. Carterwood projects a large shortfall of modern en-suite beds.
Funding a care home?
Send us the home and the operator and we will come back with a view on fundability and likely terms within one working day.