Lender support will be crucial in boosting care home capacity

It’s well known at this point that the UK has an ageing population, but the data behind this trend is stark. The 2021 Census found that around one in five people in England and Wales are already aged 65 or over, and by the end of the next decade that will have increased to around a quarter of those living here.

Given this growth in the older population, it’s inevitable that there will be a similar spike in demand for care homes. This is only exacerbated by the fact that in recent years we simply have not developed the required capacity to meet existing levels of demand, let alone the growing needs of a larger elderly population.

For example, figures from Public Health England showed that between 2012 and 2021 the total number of beds in nursing and residential care homes declined from 11.3 per 100 people to just 9.4.

In other words, as demand is rising, capacity has fallen. Clearly more needs to be done to get these homes in place to meet the needs of our ageing population.

Entering the market

Encouragingly, we know that there are care home operators out there keen to meet this demand. In many cases this interest comes from existing operators, who have honed their processes and understand how to deliver the best possible standard of care for those that require it.

Yet there is also a strong interest from would-be entrants to the market. They have spotted the opportunity here, recognised the need for a greater level of choice and have fresh ideas about how to deliver for care home residents.

It should be an exciting time for care home operators given the obvious need for their services.

The financing hurdle

Unfortunately, when it comes to accessing the financing needed for these care home projects, it’s true that many operators and prospective operators are left frustrated. This isn’t an area of the market many lenders are comfortable operating in, and even those that do are often overly prescriptive in how they work, making it ever more difficult to find suitable funding.

This is particularly true for those new entrants or less experienced operators who are drastically underserved by lenders at the moment.

It is an issue we are keen to address at Atom, having recently revamped our care home product to help first-time operators. The criteria include a stressed debt service cover of 145% at minimum, with a maximum 70% LTV, good or outstanding CQC rates homes and with an average occupancy over the previous six months of at least 90%.

This latest revamp of our care home offering isn’t the first time that Atom has responded to the actual needs of this industry. Last year for example we hiked our maximum loan size, having seen the increase in interest from operators looking to deliver larger, purpose-built care homes.

We have also adapted our proposition to better support those operating specialist care homes, or children’s homes.

Recognising that there is a gap in this market is not enough; if you want to support growth in the care home sector, then that means developing a lending proposition that will truly make a difference to operator borrowers.

Addressing gaps

Care homes are just one clear example where there is a funding gap, but it’s by no means an isolated case. It has been clear from our conversations with brokers and SME borrowers that there are plenty of other industries where lenders have underserved and overlooked an excellent client base.

It’s something that we are keen to address at Atom Bank. Businesses of all kinds need to have access to flexible finance in order to deliver to their potential, and that means working with lenders who are able to take the time to understand what they truly need in order to thrive.

As a result, it’s crucial for brokers to build relationships with lenders who can deliver for their SME clients, irrespective of whether they are new entrants to a particular industry or have a lengthy track record to point to. By working together, we can ensure that these business borrowers no longer fall through the cracks, but instead have quality lending products which can support them as they grow.