Supported living refinance and capital raising
Moving supported housing debt onto better terms, exiting a bridge after conversion, or releasing capital as an index-linked lease seasons.
Refinancing lease-backed supported housing
Refinancing in this sector does one of three jobs. It takes out a bridging facility once a conversion is complete and a provider is on a signed lease. It releases equity from stock that has risen in value or whose rent has been lifted by years of indexation. Or it restructures existing debt onto a better rate, a longer term or a more workable covenant package.
There is a fourth job that gets far less attention and matters more than any of them: refinancing before a lease runs down. Because lenders size the loan term inside the lease term, the debt available against a property shrinks steadily as the lease shortens. A property with 18 years left on the lease refinances well; the same property with 7 years left refinances poorly, on a shorter term, at lower leverage, and often on a vacant possession valuation rather than an investment one. Nothing about the building has changed. We arrange and introduce these facilities; we do not lend.
Key features
- Exits bridging once conversion works are done and a lease is signed
- Releases capital as indexation lifts the rent and the lease seasons
- Restructures rate, term and covenants on existing supported housing debt
- Times the refinance while the remaining lease term still supports good terms
Indicative terms
- Loan size (indicative)£150k to £25m and above
- Loan to value (indicative)Up to around 65 to 75%, counterparty dependent
- Rates (indicative)From around 5.5% on a strong association lease
- Term (indicative)5 to 25 years, sized inside the remaining lease
- Early repaymentCheck existing charges before committing to a move
Indicative only. Terms vary by lender, scheme and borrower and are not an offer of finance.
Who it suits
- Investors exiting a bridging facility after a conversion and lease-up
- Landlords releasing equity to fund the next acquisition
- Owners whose existing facility is approaching maturity
- Investors holding stock where the remaining lease term is starting to shorten
Useful calculators
Related guides
Discuss supported housing refinance
A view on fundability within one working day.
Timing a refinance against the remaining lease term
This is the point we make most often and the one that saves clients the most money. Lenders size both the amount and the term of a facility against the unexpired lease, usually requiring the loan to mature some years before the lease does. So the borrowing capacity of a supported housing asset declines every year that passes, on a curve that steepens as the lease gets short.
The practical implication is that a refinance is a scheduled event rather than a reactive one. An investor who reviews their debt when the lease has 15 years to run has a full market to go to. The same investor at 6 years has a handful of lenders, shorter terms, lower leverage and much less negotiating room. We review portfolios on that basis rather than waiting for a maturity date to force the issue.
Exiting a bridge after a conversion
The most common refinance we handle is a bridging exit on a converted supported living property. The bridge funded the purchase and the works; the term facility repays it once a provider is on a signed lease and rent is flowing. The variable that decides whether the exit clears the bridge is the term lender's valuation basis, investment or vacant possession.
Where investors get into difficulty is discovering that basis at refinance stage. A bridge of £206,000 against a term facility of £156,000 leaves a £50,000 hole to fill in a hurry, with the bridging facility maturing. We establish the likely term valuation before the bridge is drawn, which is why our bridging and refinance conversations are always the same conversation.
Releasing equity as indexation lifts the rent
An index-linked lease raises the rent every year, and after several years the passing rent can be materially above what it was at purchase. Because lenders size on income cover as well as loan to value, that higher rent can support a larger facility even where the property's value has not moved.
The constraint is the shortening lease pulling in the opposite direction. Indexation increases borrowing capacity while lease run-off reduces it, and there is a window, typically in the middle years of a lease, where the two combine most favourably. Identifying that window on a specific asset is straightforward arithmetic and it is worth doing rather than refinancing on instinct.
What to check before moving lender
Early repayment charges on the existing facility are the first item, and on some supported housing term loans they run for a substantial part of the term. A refinance that saves 0.4 percent on rate but triggers a two percent redemption charge may take years to pay for itself.
Then check the covenant package you are moving to, not just the rate. A cheaper facility with a provider downgrade default trigger is a worse deal than a slightly dearer one requiring only notification, because the trigger hands control to the lender at the moment you can least afford it. We compare the whole package rather than the headline rate.
Worked example: refinancing to release capital mid-lease
An investor bought a supported living property five years ago for £310,000 on a 25-year CPI-linked FRI lease at £21,700 a year, funded with a £200,000 term loan. Five years of indexation have lifted the rent to roughly £25,100 and the lease has 20 years left. These figures are illustrative only and not an offer of finance.
The property now values at £365,000 on the investment basis, reflecting the higher passing rent, and £285,000 on vacant possession. The existing loan has amortised to around £176,000. Because the provider remains well regarded and 20 years of lease remain, the new lender works from investment value and offers 65 percent, roughly £237,000.
That releases about £61,000 of capital after repaying the existing facility, before costs and any early repayment charge. Interest at an indicative 6 percent runs to roughly £14,200 against £25,100 of rent, so cover stays comfortable at around 1.8 times.
The same exercise attempted in ten years time, with 10 years of lease remaining, would look quite different: a shorter term, probably a vacant possession valuation, and a facility closer to £185,000, which would release nothing at all. The capital released here is a function of acting while the lease is long, not of anything the investor did to the property.
Illustrative worked example only. Figures vary by lender, asset and borrower and are not an offer of finance.
Supported housing refinance: common questions
When should I refinance a supported living investment?
While the lease is still long. Lenders size both the amount and the term of a facility against the unexpired lease, so borrowing capacity declines every year and the decline steepens as the lease shortens. Reviewing at 15 years remaining gives you a full market; at 6 years you have a handful of lenders and little negotiating room.
Can I release equity from supported housing?
Yes, where value or rent has risen. An index-linked lease lifts the rent each year, which can support a larger facility on the income cover test even if the property value has not moved. The offsetting factor is the shortening lease, so there is a window, usually mid-lease, where the two combine most favourably.
How do I refinance out of a bridging loan on a converted property?
Onto a term facility once a provider is on a signed lease and rent is flowing. The variable that decides whether the term loan clears the bridge is the valuation basis, investment or vacant possession. Establish that before drawing the bridge, not at refinance stage when the bridge is maturing.
Are there early repayment charges on supported housing loans?
Often, and on some term loans they run for a substantial part of the term. Check them before committing to a move. A refinance saving 0.4 percent on rate but triggering a two percent redemption charge can take years to pay for itself.
Should I always take the cheapest rate on refinance?
No. Compare the covenant package as well. A cheaper facility that treats a provider regulatory downgrade as an event of default is worse than a slightly dearer one requiring only notification, because the trigger hands the lender control at the moment refinancing elsewhere is hardest.
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