Large numbers of Britain's care homes expect to go bust in the next three years

 
Oliver Gill
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Many banks have "kicked the can down the road" with regards to their care home lending (Source: Getty)

Banks who have lent to care homes could fail to recoup their debts as large numbers are expected to go bust over the next three years.

The double-whammy of local government budget cuts and the introduction of the national living wage has put the care home sector under significant pressure in recent years.

Read more: Number of care homes going bust has risen by more than a third

The pressures are so serious that nearly one in eight care homes across the UK expect a good chance that they will become insolvent over the next three years, according to a study by accountants Moore Stephens.

Mike Finch, a partner at Moore Stephens, said that the financial pressures on care homes had led to an "unsustainable situation".

Many lenders still have considerable legacy exposure to the care home sector from pre-financial crisis days.

At the time, an aging population together with cash flows that were, at least in-part, underwritten by local authorities made the sector a popular choice for new lending.

The problem that the banks face is that calling in their debts and pushing care homes into insolvency is unappetising from a public relations perspective. Instead, many prefer to "kick the can down the road": to amend and extend loans in the hope that a change in economic conditions will facilitate full repayment at some point in the future.

“It’s become increasingly difficult for care homes, particularly smaller providers, to keep up a consistently high level of care whilst breaking even or worse, remaining solvent," said Finch.

Read more: Investec wealth manager moves property funds to Thorpe Park and care homes

Nevertheless, lending has not dried up completely. Santander is one bank that takes pride in remaining "open for business" when it comes to care home financing.

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