Care Home Development Finance: Building and Extending Beds in 2026

Building new care beds, or extending a home you already run, is one of the hardest things to fund in commercial property, and one of the most needed. We work with operators and developers who want to add registered beds, and the questions are always the same: how much of the build will a lender cover, how is the money drawn down, and what happens at the end when the home opens and starts trading. This guide sets out how care home development finance works in 2026, from loan to cost and loan to GDV through to the development exit onto a long-term facility. For the wider picture of how the whole sector is funded, start with our overview of care home finance, then come back here for the build-specific detail.

What care home development and extension finance covers

Care home development finance is a specialist form of commercial lending used to build a new home, convert a building into registered care, or extend an existing home to add beds. It sits apart from a standard care home mortgage because the asset does not yet trade. There are no occupancy figures, no mature earnings and, at the start, no Care Quality Commission (CQC) registration. The lender is underwriting a plan rather than a track record.

The structural reason this lending exists is demand. Carterwood projects a shortfall of nearly 277,000 market-standard elderly care beds by 2026, against a 75-plus population approaching seven million (Carterwood, 2026). Market-standard means modern, en-suite, purpose-built stock, so the gap is as much about obsolescence as raw numbers. LaingBuisson puts the point sharply: around 44% of current capacity is not purpose built (LaingBuisson 35th edition, 2025). That combination, a large ageing cohort and a tired existing estate, is what underpins the case for new beds.

The longer-run signal is just as clear: the ONS records the population aged 85 and over at 1.75 million in mid-2024, projected to roughly double to 3.6 million by mid-2049 (ONS, 2025). The development pipeline is responding to a need that is visible decades ahead.

Loan to cost and loan to GDV: how much of the build is funded

Two ratios govern care home development lending. Loan to cost (LTC) measures the facility against the total cost of the scheme, including land, build, professional fees and finance costs. Loan to gross development value (LTGDV) measures it against the gross development value, the GDV, which is the going-concern value of the finished, stabilised home.

On purpose-built care, senior development debt typically covers around 60% to 70% of total development cost, and up to around 60% to 65% of GDV (Care Homes Finance fact pack, 2026). The lender works to whichever ratio binds first, and on a well-located scheme with strong projected earnings it is often the loan to cost figure. The borrower funds the balance with equity, and on stronger schemes that gap can be partly filled with mezzanine.

The reason GDV matters so much is the way care homes are valued. A trading home is valued on a going-concern basis that reflects the income the operation produces, which usually sits above the bricks-and-mortar value (Care Homes Finance fact pack, 2026). For a developer, that going-concern premium is the prize: a well-run, well-rated home is worth materially more as a business than as an empty building, and that uplift is what makes the development margin and the eventual refinance work.

The structural bed shortfall and the demand case

The thesis behind new beds is not speculative. Knight Frank recorded average private care home occupancy at 88.7% in 2024/25, the highest since before the pandemic (Knight Frank, 2025), and average EBITDARM margins of 30.1% of income (Knight Frank, 2025). EBITDARM, earnings before interest, tax, depreciation, amortisation, rent and management, is the standard profitability measure for the sector because it lets lenders compare homes across different ownership structures.

Scale and quality both feed those margins. Knight Frank’s data shows homes of 60 to 79 beds running EBITDARM margins of 32.7%, against just 22.6% for homes of one to 39 beds (Knight Frank, 2025): larger, modern, purpose-built homes are more profitable and, in turn, more financeable. Capital is chasing that thesis. Savills reported more than GBP 12 billion invested in UK healthcare real estate in 2025, the highest annual total on record (Savills, 2025), and CBRE found 93% of surveyed healthcare investors looking to deploy capital into the sector (CBRE, 2025).

The live planning pipeline: real schemes in the system

The pipeline is not theoretical. Construction Capital planning data scanned 41,722 records across 112 councils and identified 311 live care home relevant applications across 81 councils as of June 2026 (Construction Capital planning data, 2026). The most active councils included Leeds with 13 applications, and Mansfield, Reigate and Banstead, Sandwell and Sefton with 10 each (Construction Capital planning data, 2026).

The schemes themselves show the full range of development finance use cases. In Tewkesbury, an application covers the erection of a detached 70-bedroom residential care home with associated parking, gardens and landscaping (Construction Capital planning data, 2026), a textbook ground-up new build. In East Suffolk, a scheme provides for a two-storey, 66-bed care home for the elderly following demolition of existing garages (Construction Capital planning data, 2026). In Reigate and Banstead, an application proposes demolition and construction of a specialist dementia care home (Construction Capital planning data, 2026), the kind of higher-acuity registration that often commands the strongest fees. Each of these would need a senior development facility sized against build cost and projected GDV, with a clear plan to register and open.

Funding new beds versus extending an existing registered home

Extending a home you already run is a distinct, and often more financeable, proposition. The existing home already trades, already holds CQC registration and already has a registered manager and a staffing base, so the lender is adding beds to a proven operation rather than starting from zero. Construction Capital planning data captures exactly this pattern: in Greater Cambridge, an application proposes an extension and alterations to an existing residential care home to accommodate 20 new bedrooms with ancillary accommodation (Construction Capital planning data, 2026).

Conversions sit between the two. The same dataset shows change-of-use applications turning dwellings into registered care, including a scheme in Bedford converting a dwelling to a residential care home with rear extensions (Construction Capital planning data, 2026). Conversions can be cheaper than ground-up build but carry risks around layout, fire compliance and bringing older stock up to a market-standard, en-suite specification. Given that 44% of capacity is already not purpose built (LaingBuisson 35th edition, 2025), lenders look hard at whether a conversion will actually produce competitive, lettable beds.

Drawdowns, the build programme and the professional team

Care home development finance is not advanced as a single lump sum. It is released in stages, in drawdowns, against the build programme, with each tranche usually certified by a monitoring surveyor acting for the lender. Interest is often rolled up during construction and the stabilisation period rather than serviced monthly (Care Homes Finance fact pack, 2026), which protects cash flow while the home has no income.

Lenders want to see a credible professional team and a sound build contract before they commit: an experienced contractor, a realistic programme, a sensible contingency and planning permission in place or well advanced. The operator side matters just as much. Experienced, multi-home operators access higher leverage and finer pricing, while first-time operators usually face lower leverage and tighter terms (Care Homes Finance fact pack, 2026). For a development scheme, where execution risk is highest, that experience premium is at its most pronounced.

Planning, CQC registration and the route to opening

Two regulatory gates sit between a consented site and a trading home. The first is planning. The Tewkesbury, East Suffolk and Reigate schemes above are all live planning applications awaiting or progressing to decision (Construction Capital planning data, 2026), and finance structures have to allow for that timeline. The second is CQC registration, which the operating company must secure before the home can admit residents. Quality then drives value: Knight Frank’s data shows EBITDARM margins of 31.3% for Outstanding-rated homes and 30.8% for Good, falling to 26.8% for those rated Requires Improvement (Knight Frank, 2025). A development that opens and earns a strong early rating supports the going-concern valuation the whole structure depends on.

The stabilisation period and the development exit

A new home does not fill overnight. Lenders typically expect a stabilisation period of roughly 12 to 24 months from opening to reach mature, stabilised occupancy of around 85% to 90%-plus (Care Homes Finance fact pack, 2026). The development facility, often with rolled-up interest, carries the home through that ramp-up.

The endgame is the development exit: refinancing the development facility onto a long-term care home mortgage once the home is open and trading toward stabilisation. Senior term debt in 2026 is priced at a margin of around 2.5% to 4.5% over base rate or a reference rate, broadly 6.25% to 8.25% all-in in the current 3.75% base-rate environment, over 15 to 25 years (Care Homes Finance fact pack, 2026). Lenders will size that facility to debt service cover of around 1.4x to 1.6x on stabilised EBITDARM (Care Homes Finance fact pack, 2026). Where stabilisation needs more time, a short bridging facility, at around 0.85% to 1.25% per month for up to 12 to 18 months (Care Homes Finance fact pack, 2026), can carry the home until it qualifies for term debt. This sits alongside the sibling routes of acquisition and refinance, which we cover separately.

Where mezzanine fits in the development capital stack

When senior debt and equity leave a gap, mezzanine finance can top up the facility and reduce the equity cheque. It sits behind the senior lender, is priced at around 10% to 16% per year, and can stretch total leverage higher on a case-by-case basis, mainly for experienced operators (Care Homes Finance fact pack, 2026). The trade-off is a higher blended cost of capital and more overall leverage, so it is used selectively and only where the projected GDV and earnings comfortably support the extra debt.

Frequently asked questions

How much deposit or equity do I need for a care home development?

Plan for the balance above senior debt. With senior facilities typically covering around 60% to 70% of total cost and up to around 60% to 65% of GDV (Care Homes Finance fact pack, 2026), the equity requirement is usually at least 30% to 40% of cost, before any mezzanine. First-time operators should expect to put in more, because their leverage is capped lower (Care Homes Finance fact pack, 2026).

Can I get development finance as a first-time care home operator?

It is harder but not impossible. Specialist healthcare lenders have the deepest appetite for development and for first-time operators, but they will expect a strong professional team, a credible operating plan and usually more equity, with leverage held below what an experienced multi-home operator could access (Care Homes Finance fact pack, 2026).

What do lenders most want to see on a development deal?

An experienced operator or a strong management team, planning in place or well advanced, a sound build contract and contingency, a realistic GDV supported by a going-concern valuation, and a clear exit. For an extension, an existing well-rated, well-occupied home strengthens the case considerably (Care Homes Finance fact pack, 2026).

Talk to us about funding your beds

The bed shortfall is real, the pipeline is live, and the finance structures to build into it are well established. If you are planning a new home, a conversion or an extension, we can help you structure the development facility and the exit onto term debt. Note that this is general market commentary, not regulated financial advice, and any figures are indicative bands rather than offers; we do not hold FCA authorisation and refer regulated matters to authorised firms. Start at Care Homes Finance and tell us about your scheme.

This analysis is part of the Care Home Finance 2026 hub, which brings together the full set of care home finance guides, the podcast and the video in one place.