How much can I borrow?

How the borrowing calculator works

On a care or supported living asset, lenders size the loan from the income, not just the price. On a care home the lender looks at the net operating income, often called EBITDARM, and on supported living at the rent under the registered provider lease, then applies a debt service cover ratio so that income comfortably covers the loan interest. We take your annual income and divide by the cover ratio to find the maximum annual interest the asset can service. We then divide that by the interest rate to find the indicative maximum loan.

The formula is maximum annual interest equals income divided by the cover ratio over one hundred. Maximum loan equals maximum annual interest divided by the rate over one hundred. If you enter a price, the implied loan to value equals the maximum loan divided by the price multiplied by one hundred.

Why debt service cover drives the loan

Lenders want headroom so a care home can still pay its mortgage through a dip in occupancy, a change in the fee mix or a rate rise, and so a supported living lease covers the debt even if a void or repairing cost arises. They usually set cover ratios between 125 and 145 percent, and price the loan accordingly. A higher ratio means a stronger cushion but a smaller loan. On a newer care home still filling up the income may cap the loan below the headline loan to value of 60 to 70 percent. To model the deposit and monthly cost once you have a loan figure, use our commercial mortgage calculator.

Worked example

On a care home producing 90,000 pounds of net operating income a year, at a 7.5 percent rate and a 130 percent cover ratio, the maximum annual interest is about 69,200 pounds and the indicative maximum loan is roughly 923,000 pounds. Enter a 1.3 million pound price and the implied loan to value is around 71 percent, just above the usual range, so the lender would likely trim the loan slightly. This is illustrative only and not an offer of finance. Send us the deal for a real view.