Care home finance glossary

Using this glossary

These are the terms we use day to day when arranging finance on care homes. They relate to funding a care home as a trading business. They are not about how individuals pay for their care.

EBITDARM

Earnings before interest, tax, depreciation, amortisation, rent and management. The standard care home profit measure because removing rent and management lets homes be compared regardless of ownership structure. Knight Frank reported an average margin of 30.1% of income for FY2024/25.

EBITDAR

Earnings before interest, tax, depreciation, amortisation and rent. One step below EBITDARM: it removes rent so leased and freehold homes compare on rent-neutral terms, but still includes management costs.

EBITDA

Earnings before interest, tax, depreciation and amortisation. A general operating-profit measure, but for care homes it is distorted by differences in rent and management cost, which is why the sector prefers EBITDARM.

Going concern

The basis on which a care home is valued and lent against as a working business, capturing its income and goodwill as well as the property, rather than as a bare building.

Bricks-and-mortar value

The value of the bare property with no trade attached. For a well-trading home it is usually lower than the going-concern value; lenders watch the gap between the two as a measure of risk.

Fully operational value

Market value of the home as a fully operational entity, having regard to its existing trade, with registration, staff and goodwill in place. The most favourable of the trade-related value bases.

MV1, MV2, MV3

Sector shorthand for a spectrum of market value assumptions: MV1 a fully operational existing trade, MV2 a property capable of trading but with limited or unproven trade, and MV3 a closed business with no trade. They are common usage in lending, not formal RICS terms.

CQC

Care Quality Commission, the regulator of adult social care in England. It rates homes Outstanding, Good, Requires Improvement or Inadequate, and the rating is a primary signal for lenders.

Ofsted

The regulator of children's homes and education in England. Where a deal involves children's residential care, lenders look at the Ofsted rating rather than the CQC rating.

Occupancy

The proportion of a home's registered beds that are filled and earning. Higher and more stable occupancy lifts maintainable earnings. Knight Frank put sector occupancy at 88.7% for FY2024/25.

Fee mix

The balance of a home's income between private self-funders and local-authority funded residents. A higher private-pay share usually means stronger, more resilient fees.

Self-funder

A resident who pays their own care fees rather than being funded by a local authority. Carterwood put self-funder nursing fees at 1,696 pounds a week as at September 2025. A higher self-funder share supports keener lending.

FRI lease

A full repairing and insuring lease, under which the tenant is responsible for repairs and insurance. Common where a care home operates as a tenant of a separate property owner.

OpCo PropCo

A structure that separates the operating company, which runs the care business, from the property company, which owns the building, often with a lease between them. It allows the property and the trade to be financed or sold separately.

Sale and leaseback

A transaction in which an operator sells the freehold of a home to an investor and leases it back, releasing capital while continuing to run the home as a tenant.

Loan-to-cost

On development finance, the loan as a percentage of total project cost including land, build and fees. Care home development is typically funded up to about 60 to 70 percent loan-to-cost.

Loan-to-value

The loan as a percentage of the property or business value. On a going-concern care home purchase, lenders typically advance up to about 70 to 75 percent of value.

GDV

Gross development value, the value of a completed development scheme. For a care home it is closely tied to stabilised value; development lenders cap the loan at roughly 60 to 65 percent of it.

Stabilised value

What a newly built or repositioned home is worth once it is open and trading at mature occupancy. Carterwood put the time to reach stabilised occupancy for a new 70-bed home at about 2.5 to 3.25 years.

Covenant

The strength of the borrower and any guarantees behind a loan or lease. A stronger covenant, for example an experienced operator with a clean record, supports higher leverage and keener pricing.

Debenture

A security a lender takes over a company's assets and undertaking. Often used in care home lending alongside a legal charge over the property.

Mezzanine

A layer of finance that sits between senior debt and equity, ranking behind the senior loan. It can stretch the total funding on a development but is priced higher to reflect the greater risk.

Bridging

Short-term finance, usually up to about 18 months and priced monthly at roughly 0.75 to 1.2 percent, used for speed, for closed homes or for repositioning before a term refinance.

Registered beds

The number of beds a home is registered to operate, together with the regulated activities permitted. This sets the income ceiling of the home and forms part of the lender's and valuer's assessment.

Repositioning finance

Funding for a turnaround of an underperforming or closed home, typically bridging or development-style, repaid by a term refinance once the home is trading and re-rated to Good.