Insights from the care sector: OakNorth’s continued commitment and appetite for support

The care sector has seen significant upheavals over the last five years due to the pandemic, Brexit, the war in Ukraine and the UK cost of living crisis. Yet, despite these tests, the sector has been hugely resilient and shown a lot of potential for growth. OakNorth’s resident care expert, Debt Finance Director Stuart Blair, recently sat down with the partnerships team to shed some light on the industry’s challenges and opportunities, and how we’re committed to funding its growth. 

The resurgence of the sector

Covid undeniably hit the care sector hard, especially the elderly in care homes. The number of deaths in homes had the knock-on effect of families not wanting to put their loved ones into care, which led to a sharp decline in occupancy rates, down from just under 90% to around 70% at the height of the pandemic. This, coupled with other geopolitical challenges, meant that for many businesses, it was a struggle to remain profitable. Despite this, in the past year, occupancy levels in homes have made a noteworthy comeback and now hover around the long-term average of the last 15 years at just under 90%. Cost bases linked to energy consumption have begun to reduce once more, which has led to providers entering more attractive fixed rate, fixed period contracts, which gives them more certainty and stability. This bounce-back, despite the challenges, is a testament to the sector’s inherent strength and the dedication of its stakeholders.

Foreseeable challenges

There are of course, still ongoing challenges in this sector. Staffing is a significant concern in all aspects of care and healthcare. With the ongoing impacts of Brexit and other socio-economic factors, it has become much harder to find, employ and retain qualified staff.

Another effect of the UK cost of living crisis is that the average worker expects their take-home pay to increase to keep pace with inflation and this in turn puts further pressure on businesses.

Additionally, in the care home segment specifically, there’s now a mismatch between demand and supply for high-quality beds. While this is a difficult situation to navigate with the staffing challenges, demand for beds outweighing supply presents a strong opportunity for good quality operators to keep expanding and rolling out more beds in areas where there is a dearth of supply.

Continued potential for growth

OakNorth continues to have a strong appetite to support this vital industry; we’re aiming to lend over half a billion across the care and healthcare sectors over the next 18 months. We’ve seen that there is significant long-term potential in the care homes segment, given the UK’s ageing population and the continuing demand-supply gap. However, our lending scope isn’t limited to operational care homes but also includes funding for new care homes and retirement village developments, as well as businesses that offer specialist care for adults and children. We’ve recently supported the growth of a leading provider of specialist education and care for children, Phoenix Learning and Care, and Melrose Education.

OakNorth’s lending criteria

The care sector, alongside education, is one of the most regulated sectors in the UK, which means that the management team’s experience is key. When assessing a business in this sector, we need to ensure that the management team have a strong track record of operating within a CQC-regulated environment.

The business itself must have a good or outstanding CQC rating, as without this, a business is more likely to be closed either temporarily or permanently. Outside of management and focusing on care home development finance specifically, we review all the business’ assets. In an ideal world, we’d lend to newly built care homes that we are certain meet all current building regulations. However, we have a good track record of lending to high-quality converted care homes, as these typically do meet a lot of current standards. There are many banks now that will not lend to conversions at all, but we look at each case on its own merits, and if it’s a high-quality conversion, we’ll always consider it.

Whether your business is in senior living, specialist care homes or children’s care, or you’re an accountant supporting care businesses, our stance is clear. We recognise the ongoing challenges that the sector faces, but we also see its undeniable potential. We’re here to support the care sector by providing businesses with the funding they need. You can enquire about financing for your healthcare business here, or to speak about funding for your clients, email [email protected].

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