1 in 4 care homes is financially unstable

The UK’s care home sector is still in a serious state of crisis, with 1 in 4 care homes at risk of going bust.

Marketing research analysts Company Watch released figures on the financial health of 5,037 UK care home companies, and found that almost 25% are in a worrying financial situation.

The report comes 6 months after the last survey by Company Watch. Although the number of care home companies at risk has fallen by 6% since August 2013, this slight improvement will still ring alarm bells in the sector.

Company Watch revealed that 1,185 care home companies had a financial health rating of 25 or less out of 100. Over the past 15 years, 1 in 4 companies in this so-called ‘warning area’ have needed financial rescue.

The average borrowing level of care home companies is 75% of their assets, which is known as gearing. According to Company Watch, gearing of this level is unusually high and means that care homes are financially vulnerable to unbudgeted interest rate rises.

However, the biggest concern surrounds care home companies with liabilities greater than their assets. Given the name ‘zombies’, the number of companies in this situation has experienced very little change since August 2013, having a total negative net worth of £199 million.

Nick Hood, Business Risk Analyst at Company Watch, said: ‘The slight improvement in the financial health of the sector since last year is encouraging, but a business model that dictates 75% gearing, and delivers a profit margin of less than 1%, is simply not sustainable. We all know that local authorities cannot afford to pay higher fees and that the minimum wage is expected to rise by 3% in autumn. When you add in rising energy costs and the strong likelihood of interest rate rises in 2015, the first since 2008, this creates even more pressure on poorly performing homes.’

Ros Altmann, a leading campaigner for the elderly and former government adviser on retirement, says that the problem of debt is rife across the whole care sector.

‘It is deeply worrying that the most vulnerable members of our society may be being cared for by companies that themselves are financially vulnerable,’ she said. ‘The consequences of failure in this sector go far beyond finance.’

In 2013, the Care Quality Commission (CQC) unveiled plans to start making checks on the finances of care homes. The watchdog is currently discussing these plans with the public, including people who receive care, their carers and social care services.

Andrea Sutcliffe of the CQC said: ‘This is a fresh start for how care homes, home care and other adult social care services are inspected and regulated across the country. I will be leading CQC’s new approach by making more use of people’s views and by using expert inspection teams involving people who have personal experience of care.’