Care home operators are expressing concerns that the recent increase in mortgage rates, coupled with government reforms being delayed, will have a detrimental impact on UK providers. The number of registered care homes has already seen a slight decrease, falling from 12,280 at the beginning of the year to 12,224 on May 31st, according to data from carehome.co.uk. While closures in England have slowed compared to the same period last year, rising mortgage rates are adding to the burdens faced by the care sector, including rising food and fuel prices and funding shortfalls.
Nadra Ahmed, Chair of the National Care Association, describes the current situation as extremely challenging, stating that there are vulnerable providers currently operating and many care homes that will be put up for sale. She cites the closure of Pelham House in Kent after 40 years of operation as an example of the financial difficulties faced by care homes. The ability to repay borrowings is being impacted by the increase in mortgage rates.
The Bank of England’s decision to raise interest rates by 0.5 percentage points to 5% in June, aimed at controlling inflation, has resulted in higher monthly mortgage repayments for borrowers on variable rates. Care providers are already feeling the effects of this rate increase. Jay Dodhia, CEO and co-founder of Serene Care, explains that most care homes are on variable rates with fixed rates being difficult to obtain even when rates were low. As the Bank of England’s rate creeps up, interest payments for care providers increase. Dodhia warns that when combined with rising inflation, utility and food costs, staffing challenges, and other factors, the outcome could be disastrous for multiple providers.
The Association of Directors of Adult Social Services reports that the number of councils in England experiencing care home closures has risen to roughly 44% by the end of May 2023, compared to around one-third pre-pandemic in 2019. Natasha Curry, Deputy Director of Policy at the Nuffield Trust, expects this trend to continue given the escalating borrowing rates. During the COVID-19 crisis, emergency government funding helped stabilize the market, but this funding has now ended. Cathie Williams, Joint CEO of the Association of Directors of Adult Social Services, acknowledges that councils have a responsibility to ensure “continuity of care” for residents in the event of a home closure. However, various factors, including a decade of austerity, Brexit, the pandemic, staff shortages, and rising living costs, have resulted in significant vulnerabilities within the sector.
Diminishing capacity in social care has wider implications for the healthcare system, as expressed by Matthew Taylor, CEO of the NHS Confederation. Taylor emphasizes that a lack of social and residential care impacts the NHS, leading to avoidable hospital admissions and a log jam effect in A&E departments, with long ambulance waits. Richard Stebles, Head of Business Intelligence at carehome.co.uk, provides some positive news, stating that the rate of closures in England and Wales has slowed, although Scotland has experienced an increase. Care providers are likely to focus on attracting more privately funded residents to remain sustainable as they pay higher fees compared to those funded by local authorities.
Dodhia suggests that the average fee for publicly funded social care beds should be £900 per week, while local authorities often pay between £600 and £700 a week, with some only willing to spend £490. Care home operators were hopeful for increased funding from local authorities following a cost of care exercise, but some struggled to raise payment, and reforms have been delayed until October 2025. Providers have also faced challenges accessing the £200 million allocated for the NHS crisis plan, intended to transition patients from hospitals to care homes. Despite the announcement of a winter discharge fund, local authorities have been hesitant to spend it, leaving vulnerable residents without long-term support.
The Department of Health and Social Care claims to be investing up to £7.5 billion in social care over the next two years, the largest funding increase in history. This investment aims to enhance capacity in social care, with £1.4 billion being allocated to local authorities for flexible use, including higher payments to social care providers. However, despite the pressures faced by the adult social care market, the number of registered adult social care locations has remained stable, and there are 6,600 more home care agencies in England compared to 2010, according to the Department.
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