Supported living commercial mortgages and term loans
Long-term debt on supported housing let to a registered provider, sized on the lease rent and the covenant behind it rather than on a marketed yield.
Term debt against a registered-provider lease
A commercial mortgage on supported housing is long-term debt secured on property let to a registered provider or housing association, repaid from the lease rent over a term that commonly runs 5 to 25 years. It is the product most investors end up in, whether they buy stock already let or refinance out of a bridge after converting a property themselves.
Sizing runs off two tests and the tighter one wins. The loan to value test compares the facility to the valuer's figure, on whichever basis that lender uses. The income cover test compares the rent to the interest, with lenders generally wanting the rent to cover interest by a comfortable margin so a rent reduction or a void does not immediately breach covenant. On a strong lease to a substantial association, leverage of around 65 to 75 percent is achievable with rates from around 5.5 percent. On a short lease to a small provider, expect materially less on both counts. We arrange and introduce these facilities; we are not a lender.
Key features
- Term debt of 5 to 25 years secured on lease-backed supported housing
- Sized on the lower of a loan to value test and an income cover test
- Capital and interest or interest only, with indexation built into the cover calculation
- Covenant package negotiated up front, including provider downgrade notification terms
Indicative terms
- Loan size (indicative)£150k to £25m and above
- Loan to value (indicative)Up to around 65 to 75% on a strong association lease
- Rates (indicative)From around 5.5%, provider and lease dependent
- Term (indicative)5 to 25 years, usually inside the lease term
- Interest cover (indicative)Rent to cover interest with a comfortable margin
Indicative only. Terms vary by lender, scheme and borrower and are not an offer of finance.
Who it suits
- Investors holding supported living or SSH stock on a long lease
- Landlords refinancing out of bridging after a conversion and lease-up
- Owners of social and affordable housing let to a housing association
- Investors restructuring existing debt as a lease seasons and indexation lifts the rent
Useful calculators
Related guides
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Why the loan term rarely exceeds the lease term
Lenders size the term of the facility inside the term of the lease, and usually with a margin. A lender advancing against a 20-year lease will not typically write a 25-year loan, because the last five years would be secured on income that has no contractual basis. Many will want the loan to mature several years before the lease does, so there is time to refinance or re-let if the provider does not renew.
This has a practical consequence investors often miss. As a lease runs down, the debt available against it shortens and shrinks. A property with 18 years left on the lease finances well; the same property with 7 years left finances poorly, even though nothing about the building has changed. Refinancing earlier in the lease, while the term is long, is usually cheaper than waiting.
How indexation is treated in the cover calculation
Most supported housing leases are index-linked, commonly to CPI, sometimes with a cap and a collar. Lenders take a conservative view of this. They generally size on the passing rent today rather than on projected uplifts, so an investor modelling affordability on rent five years out will find the lender offering less than expected.
Where indexation is capped, that cap becomes the ceiling on the lender's view of future income and can affect the term offered. Where it is collared with a minimum uplift, that is a genuine positive that a well-presented submission should draw attention to, because it protects the real value of the income the loan is secured on.
Capital and interest or interest only on a lease-backed asset
Interest only maximises cash flow and is common where the investor intends to refinance or sell before the lease runs down. Capital and interest amortises the debt so the loan reduces as the remaining lease term shortens, which keeps the loan to value moving in the right direction over time.
On lease-backed supported housing there is a specific argument for amortisation. The security is finite in the sense that the lease has an end date, so a facility that repays alongside it is structurally safer than one that does not. Several lenders in this sector require at least partial amortisation for exactly that reason, and where they do not, it is still usually the sounder structure.
The covenants that matter in this sector
Beyond the usual loan to value and interest cover covenants, supported housing facilities commonly carry provider-specific terms. Expect an obligation to notify the lender if the provider's regulatory judgement is downgraded, if the lease is varied or surrendered, or if the provider enters any insolvency process.
Some facilities go further and make a provider downgrade an event of default. That is worth negotiating hard, because it hands the lender control at precisely the moment the asset is hardest to refinance elsewhere. A notification obligation with a cure period is a reasonable landing point and we push for it as a matter of course.
Worked example: term debt on a seasoned SSH lease
An investor owns a block of four supported living apartments let on a 22-year CPI-linked FRI lease to a registered provider, with 18 years remaining. The passing rent is £46,000 a year after four years of indexation. These figures are illustrative only and not an offer of finance.
The lender values the block at £690,000 on the investment basis and £540,000 on vacant possession. Because the provider is well regarded and the lease has 18 years to run, the lender works from investment value and offers 65 percent, roughly £448,000, on a 15-year term on capital and interest, maturing three years before the lease expires.
At an indicative rate of around 6 percent, interest in year one is roughly £27,000 against £46,000 of rent, giving cover of about 1.7 times, comfortably inside the lender's requirement. Amortisation over 15 years means the loan falls steadily as the remaining lease shortens, so the loan to value improves each year rather than deteriorating.
Had the same investor waited until only 8 years remained on the lease, the lender would likely have shortened the term to around 6 years, moved to vacant possession valuation and reduced the facility to roughly £350,000. That difference is entirely a function of timing, and it is why we advise reviewing term debt while a lease is long rather than when it is short.
Illustrative worked example only. Figures vary by lender, asset and borrower and are not an offer of finance.
Supported housing commercial mortgages: common questions
Can you get a commercial mortgage on supported living property?
Yes, from specialist lenders, challenger banks and a small number of clearing banks with social housing teams. Facilities are sized on the lower of a loan to value test and an income cover test, indicatively up to around 65 to 75 percent on a strong lease to a substantial housing association, with rates from around 5.5 percent.
How long a term can I get on a supported housing mortgage?
Commonly 5 to 25 years, but the term is sized inside the lease term and usually with a margin, so the loan matures before the lease does. As a lease runs down, both the term available and the loan amount shrink, which is why refinancing while the lease is long is generally cheaper.
Do lenders use projected indexed rent when sizing the loan?
Generally no. Lenders size on the passing rent today rather than on projected uplifts, so affordability modelled on rent five years out will overstate what is available. A collared indexation with a guaranteed minimum uplift is a genuine positive worth highlighting in a submission.
Should I take interest only or capital and interest?
On lease-backed supported housing there is a specific case for amortisation, because the lease has an end date and a facility that repays alongside it is structurally safer. Several lenders in the sector require at least partial amortisation. Interest only suits investors intending to refinance or sell well before the lease runs down.
What happens to my loan if the registered provider is downgraded?
Most facilities require you to notify the lender. Some treat a downgrade as an event of default, which hands the lender control exactly when refinancing elsewhere is hardest. We negotiate for a notification obligation with a cure period rather than a default trigger wherever the lender will accept it.
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