Healthcare Property Finance: A Specialist Sector
**Healthcare property** represents one of the most resilient sectors in UK commercial real estate. Care homes, GP surgeries, dental practices, pharmacies and veterinary clinics all require specialist financing that accounts for regulatory oversight, income structures and operational complexity.
At **Commercial Mortgages Broker**, we arrange finance for healthcare properties across England, Scotland and Wales. This guide covers the key lending criteria, regulatory considerations and practical steps for securing finance in this specialist sector.
Why Healthcare Property Requires Specialist Finance
Healthcare properties differ from standard commercial real estate in several fundamental ways:
- Regulatory oversight: Many healthcare properties are subject to inspection and regulation by bodies such as the Care Quality Commission (CQC), NHS England or the General Pharmaceutical Council
- Income dependency: Revenue often derives from government-funded contracts (NHS, local authority) rather than purely private sources
- Operational complexity: Running a healthcare facility requires specific licences, qualified staff and compliance with stringent standards
- Alternative use limitations: Converting a purpose-built care home or surgery to another use may be difficult or impossible without planning permission
These factors mean mainstream commercial mortgage lenders often lack the expertise to assess healthcare property applications correctly. Specialist lenders and brokers who understand the sector deliver significantly better outcomes.
Care Home Finance
Care homes represent the largest segment of healthcare property finance. The UK has approximately 15,000 care homes providing over 450,000 beds, and demand continues to grow as the population ages.
CQC Ratings and Lender Requirements
The **CQC rating** is arguably the single most important factor in any care home mortgage application. Lenders assess CQC ratings as a proxy for operational quality and business sustainability.
| CQC Rating | Lending Impact |
|---|---|
| Outstanding | Best rates and highest LTV available |
| Good | Full range of lender options |
| Requires Improvement | Limited lender choice, higher rates |
| Inadequate | Extremely difficult to finance |
A home rated "Requires Improvement" or "Inadequate" may still be financeable if the buyer can demonstrate a clear turnaround plan and has a strong operational track record elsewhere.
Fee Structures and Income Assessment
Care home income typically comes from three sources:
- Local authority funded residents: Fees are set by the local authority, typically ranging from £600-£900 per week depending on the region and level of care
- NHS-funded residents (Continuing Healthcare): Higher fee rates, typically £800-£1,500 per week for complex care needs
- Self-funding residents: Private payers who fund their own care, often at premium rates of £900-£1,800+ per week
Lenders prefer homes with a healthy mix of funding sources. A home that relies entirely on local authority funding is more vulnerable to fee rate freezes or cuts than one with a strong proportion of self-funders.
**Key Takeaway:** Homes with 30%+ self-funding residents are significantly more attractive to lenders, as self-funded income is typically higher and more stable than local authority rates.
Typical Care Home Mortgage Terms
- LTV: 55-70% (up to 75% for established, well-rated homes)
- DSCR requirement: 1.3x - 1.5x
- Interest rates: Base rate + 2.5% to 5%, depending on rating and occupancy
- Terms: 15-25 years
- Minimum occupancy: Most lenders want to see 80%+ occupancy before lending
Care Home Valuation
Care homes are valued on a **profits basis**, similar to pubs and hotels. The valuer assesses the **fair maintainable trade** (FMT), which represents the level of trade a reasonably efficient operator could achieve. This is then capitalised at an appropriate yield to determine the property value.
Factors affecting valuation include:
- Number and size of rooms (en-suite rooms command higher fees)
- Mix of single and shared rooms (single rooms are increasingly required)
- CQC rating history
- Local competition and demand
- Staffing costs relative to revenue
- Building condition and compliance with current regulations
GP Surgery Finance
GP surgeries present a unique financing proposition because of their relationship with **NHS England** and the **Primary Care Network** (PCN) structure.
Ownership Models
GP surgeries in the UK typically fall into two categories:
- GP-owned premises: The practice partners own the building and receive a notional rent reimbursement from NHS England. This rent provides a stable, government-backed income stream
- Third-party owned: An investor owns the building and leases it to the GP practice, often on a long lease with NHS-backed rent
Notional Rent
The **notional rent** system means that GP practices occupying their own premises receive reimbursement from NHS England based on the current market rent for the property. This creates a uniquely secure income stream that lenders value highly.
Key advantages of notional rent:
- Government-backed income
- Reviewed every three years (upward only in practice)
- Provides excellent debt service coverage
- Makes GP surgeries among the lowest-risk commercial property investments
Surgery Mortgage Terms
- LTV: Up to 80-100% for GP-owned premises (due to the strength of notional rent)
- Interest rates: Among the lowest in commercial property, often base rate + 1.5% to 3%
- Terms: Up to 25 years
- Security: The surgery property plus assignment of notional rent income
**Key Takeaway:** GP surgery finance is among the most favourable in the commercial property market because of the NHS-backed income stream. Some lenders will fund up to 100% of the property value for established practices.
Pharmacy Finance
Pharmacies occupy a distinctive position in healthcare property, combining retail premises with a healthcare service that is regulated and often NHS-contracted.
Types of Pharmacy Finance
- Purchasing the freehold: Buying the property from which the pharmacy trades
- Business acquisition: Purchasing the pharmacy business (including goodwill, NHS contract and fixtures)
- Combined property and business: Acquiring both the premises and the business together
NHS Contract Value
The NHS dispensing contract is the primary value driver for a pharmacy business. Lenders assess:
- Prescription volume: Monthly items dispensed (typically 3,000-15,000+ per month)
- Service income: NHS-commissioned services such as flu vaccinations, blood pressure checks and medicines use reviews
- Front-of-counter sales: Retail income from over-the-counter products
- Location protection: Whether the pharmacy benefits from regulatory protection limiting nearby competition
Pharmacy Mortgage Terms
- LTV: 60-75% for property, potentially higher when the NHS contract value is included
- Interest rates: Base rate + 2.5% to 4.5%
- Terms: 15-25 years
- Business value: Pharmacy businesses typically valued at 80-150% of annual NHS turnover
Dental Practice Finance
**Dental practices** combine property value with business goodwill and often NHS contracts. The financing approach depends on the practice type:
- NHS dental practices: Benefit from stable NHS contract income, though UDA (Units of Dental Activity) rates and contract reform create some uncertainty
- Private dental practices: Valued on private fee income, typically requiring stronger revenue evidence
- Mixed practices: Most common, combining NHS and private income streams
Dental practice lenders include specialist healthcare divisions within **Lloyds**, **NatWest** and challenger banks such as **Shawbrook** and **Aldermore**.
Key Considerations Across All Healthcare Properties
Regulatory Compliance
Lenders will want evidence of regulatory compliance before advancing funds. This includes:
- Current CQC registration (care homes, dental practices, GP surgeries)
- GPhC registration (pharmacies)
- Fire safety compliance
- Environmental health certification
- Health and Safety Executive compliance
- Building regulations compliance
Staffing and Management
Healthcare businesses are highly dependent on qualified staff. Lenders assess:
- Whether the business relies on agency staff (higher cost, less stable) or permanent employees
- Key person risk (is the business dependent on one individual?)
- Succession planning for owner-operators
- Staff turnover rates
Demographic Analysis
The local demographic profile directly affects demand for healthcare services. Lenders consider:
- Population age profile (ageing populations support care home demand)
- Local competition and supply levels
- Population growth projections
- Deprivation indices (affecting funding sources and fee levels)
Structuring Healthcare Property Finance
The optimal structure depends on your specific situation:
Owner-Occupier Finance
If you are both the property owner and the business operator, a standard [commercial mortgage](/services/commercial-mortgages) secured against the property is the usual approach. The lender assesses both the property value and the business viability.
Investment Finance
If you are acquiring a healthcare property as an investment (leased to an operating tenant), the lender focuses primarily on the tenant covenant and lease terms. Long leases to NHS-backed tenants or established care home operators are particularly attractive.
Acquisition Finance
Purchasing both the property and the business may require a blended facility combining a commercial mortgage (for the property) with a business loan (for goodwill, equipment and working capital).
Development and Refurbishment
Building a new care home or converting an existing property requires [development finance](/services/development-finance) during the construction phase, with refinance to a commercial mortgage once the property is operational and achieving target occupancy.
How to Strengthen Your Application
- Ensure regulatory compliance: Resolve any outstanding CQC issues before applying
- Prepare comprehensive financials: 3 years of accounts, management accounts and projections
- Demonstrate sector experience: Your operational track record is crucial
- Show occupancy and revenue trends: Upward trends significantly strengthen applications
- Engage a specialist broker: Healthcare property finance is a niche area where broker expertise adds substantial value
[Contact us](/contact) to discuss your healthcare property finance requirements with a specialist adviser.
Frequently Asked Questions
Below are the most common questions we receive about healthcare property finance.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*