With some potentially tougher times facing the care industry, supply has been struggling to keep up with demand. But for those that can weather the storm, there’s a ready and waiting audience to tap into. Our Debt Finance Director, Steve Wilson, scoped out the current factors that care providers should be aware of.
The social care sector continues to exhibit increasing demand. According to the ONS, the proportion of people aged 65 or older in England and Wales grew materially from 2011-21 and now totals over 11 million. Furthermore, according to the Centre for Ageing Better figures, over the next ten years, those aged 65 or older are set to increase to 13 million, representing over a fifth of the entire population. Consequently, the importance of a successfully functioning social care sector will be greater than ever before as we and our loved ones age.
Despite rising demand, the care home sector is still experiencing reduced supply because the development of new beds fails to keep pace with home closures, let alone exceed them. So why the increasing supply & demand imbalance? Well, it has been one challenge after another for the sector in recent years, including public funding constraints, implementation of the national living wage (which operators are supportive of, but the hard reality is that it has to be funded), Brexit and Covid-19. If that wasn’t enough, the sector is now facing further headwinds…
Labour shortages
Although not a new challenge for the sector, these are undoubtedly more exaggerated than before. The latest figures from Skills for Care reveal that the number of vacant posts in the social care sector has increased by 52% or 55,000 to 165,000 since 2020/21. In addition, other businesses like supermarkets, free of public funding constraints, have lured staff away from social care with the offer of higher wages which they have been able to fund through (above inflation) price increases.
Discretionary income squeeze
Private pay residents have effectively subsidised publicly-funded residents in recent years, however the capacity for this to continue in the current high inflation and higher interest rate environment is uncertain.
Increased energy costs
By definition care homes are large well heated properties thus the sector has been adversely impacted more than most by rising energy costs.
Increased interest rates
Care home and retirement living businesses typically have higher debts than other businesses of equivalent size in terms of turnover, given the value of the properties they operate from. As a result, the rapid rise in interest rates has hit the sector harder than the average UK business.
As a result of us not only being the digital bank for entrepreneurs, by entrepreneurs, but also one that has a long-term commitment to our home domestic market, at OakNorth we understand these short/medium term challenges won’t hang around forever. So we’re staying committed to supporting investment activity that will capture the benefit of the prosperous future ahead for this critical sector.
If you’re a care home developer and/or operator looking for capital to grow – whether organically, through development or acquisition – get in touch. We understand the sector, provide business loans of £250k up to tens of millions, and aim to complete transactions in days or weeks vs the months it takes traditional banks.
