We all know that navigating the finance on a supported living lease can feel like a daunting prospect and there are several factors that will influence who may be willing to lend to you, including the length of the lease, the type of care required by tenants, and the experience of both the property investor and the care provider. Here are a few points to consider.
Generally speaking, there are fewer high-street lenders who will lend on properties with supported living leases compared to the standard lending market where ASTs are used.
These lenders will generally lend on ‘normal’ LTVs of 65–85% (75% being a good average) with an interest rate roughly similar to the rate you will get for standard landlord lending.
A fair few of these lenders will also have some specific conditions about the lease, such as:
- It must be between three and five years;
- There must be a mutual break clause at six months.
We are aware of one lender (Aldemore) who will consider supported living leases, but only where the lease is with an RP and that RP is on the government’s list of registered providers, otherwise the application will not be considered.
There are several semi-commercial/commercial lenders who will lend on supported living leases and with commercial lenders, there is more flexibility on lease length. Of course, commercial lending will often mean a higher interest rate, but that’s not a reason to rule it out altogether. The following figures demonstrate the impact of interest rates on monthly repayments on a £280k mortgage over 15 years:
The level of care provided to the tenants can be a stumbling block with high street lenders. If the tenants receive 24-hour care, high street lenders will classify this as a care home and therefore consider it commercial. What’s more, if the care provider has tenants who do not need 24-hour assistance, but 24-hour care is part of the provider’s business model, then some lenders will not be happy to lend on that property in case the tenants change and are replaced by individuals with more significant care needs.
A scenario where an investor owns the property, the care business and the housing provider who received the rent from the local authority is generally not accepted by lenders. This is also something that regulators do not agree with and the CQC will actually not allow.
The experience of care providers is another factor. Lenders are usually unwilling to lend where the care provider has little or no prior experience in the field. However, there are exceptions where you can make your case – especially if the provider has related experience in other areas, such as a longstanding background in social work for example. In these instances, be sure to talk to lenders as soon as possible and do a pre-application to gauge responses.
Lenders are ideally looking for 12 months’ experience as a property developer, so inexperienced landlords may also have difficulty securing the finance for a supported living lease. If you don’t have this, consider joint venturing with an investor who does have suitable landlord experience. Minimum income requirements aren’t usually a factor.
It is very important that you are clear and precise on the permitted use of the building within the lease as this may allay some of the lender’s concerns – be very specific about your intended tenants and their care requirements. We recommend sharing a copy of the lease (it doesn’t need to be complete or signed) as early in the financing process as you can to ensure that there is time for background checks and opportunities for adjustments in order to secure the financing. One of our mortgage broker partners does have a lender that will review leases for free.
Finally, as a property owner embarking on a long-term relationship with a care provider, it is important that you carry out a level of due diligence of your own and do not rely on the lender to do this for you. This is a commercial relationship between you and the provider, and so should be approached in that way. On our supported living strategy course, we have an entire module focused on care provider due diligence. If you’d like to find out more about our training, do get in touch.
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