On 23 June 2016 the UK voted to leave the EU. Article 50 of the Lisbon Treaty was triggered on 29 March 2017. The UK is due to exit the EU on 29 March 2019. The terms of the exit and the following relationship with the EU are to be negotiated. As the Brexit process evolves, the appetite of banks to lend to businesses running care homes could change. The implications of leaving the EU may not be as expected.
At the moment banks are willing to lend to businesses running good quality care homes. Care homes with a high proportion of privately funded residents are particularly popular with banks. Banks usually need to lend to make a profit. Compared with other sectors, private care may be considered to be Brexit resistant. The sector may be perceived to be unaffected by currency exchange rates or the risk of businesses having to pay tariffs to export to buyers in the EU.
Banks may anticipate EU citizens in the UK at the time of the referendum being allowed to continue to work in the UK. Although this is a possible outcome of negotiations, until an exit deal is agreed it is uncertain. If an outcome of exiting the EU is some EU citizens lose the right to work in the UK, this could result in a loss of substantial labour from the care sector. Although employees who have been exercising treaty rights in the UK for at least five years can apply for permanent residence, it is uncertain whether this will continue after the UK exits the EU.
If an exit deal allows EU citizens in the UK at the time of the referendum to continue to work in the UK, there could still be a labour shortage. While the exit deal is being negotiated they may move to another EU country where there is less uncertainty. The problem could be compounded if the uncertainty deters further EU citizens looking to work in the care sector.
An insufficient supply of domestic labour to fill gaps could lead to competition for staff and higher wage costs. This could significantly reduce the profitability of care businesses. Some care homes may close.
Banks may also anticipate an exit deal providing for free trade with the EU. This is uncertain. UK businesses may have to pay significant tariffs to export goods to buyers in the EU. Banks may consider this likely to damage the UK economy and consequently reduce the value of assets residents may sell to fund care home fees, such as shares and properties. Macroeconomics may also have this impact. For example, further falls in sterling may lead to higher inflation, increased interest rates and decreases in asset values.
Care homes focused on providing care for private residents may have a significant proportion of local authority funded residents. These homes may be particularly exposed to adverse macroeconomics. Damage to the economy may result in the Government receiving less tax. This may cause the Government to have less funds available to pay care home fees. It could also have less funds available if a significant cost is paid to the EU when the UK exits.
Banks dislike uncertainty. If in the future banks consider the likelihood of one or more of these factors materialising to have increased, this may cause a contraction in their funding of care homes. A perception of an increased risk may cause a contraction, irrespective of whether the risk materialises.
If you have a loan maturing in the next few years, it may be prudent to consider refinancing now. You may prefer to refinance while there is an active market, rather than risk there being less credit available in the foreseeable future. If there is less credit available, you may have to pay more for a loan. You may not be able to refinance at all and could become insolvent.