Care Home Insolvencies Jump 52% in a Year as Running Costs Spiral
• Residential care businesses struggle to keep up with mounting debt costs, energy bills and labour shortages
Insolvencies involving residential care businesses have increased 59% in the past year from 56 to 85, as they struggle to cope with mounting debt servicing costs and steep rises in energy bills says Mazars, the international audit, tax, and advisory firm.
Rebecca Dacre, Partner at Mazars says:
“The margins which care homes operate to have always been relatively thin. Now rising costs are pushing an increasing number into insolvency.”
“A lot of care homes had taken on significant levels of debt on the properties they own, all of which has become much more expensive to service as interest rates have risen.”
“Many care providers have simply been unable to cope with surging energy and food prices increasing the basic costs of care, combined with increased staffing costs, in a sector where costs cannot easily be cut much further.”
One issue which has been frequently raised is the difficulty of discharging vulnerable patients from hospitals due to a lack of space in care homes.
Rebecca Dacre adds:
“The residential care sector is vital to looking after the most vulnerable people in our society. It’s deeply concerning to see care homes closing their doors, in a sector which already has a massive shortage of provision and which has seen occupancy levels return post pandemic.”
“More insolvencies in this sector are said to be leading to additional stress on the National Health Service as patients who could otherwise be discharged to care homes remain in hospital beds.”
Care businesses are expected to be hit hard by rising energy costs. Soaring energy prices are predicted to cost the care sector an additional £2bn* per year, which will place more care homes into financial jeopardy.
Many care businesses also have large mortgages on their properties. The recent interest rate rises will be creating further costs on any floating rate debts they have secured against their properties. It will also prove increasingly difficult for care homes to be able to refinance their debt at an affordable rate.
Residential care businesses are also struggling with a worsening labour shortage, exacerbated by Brexit reducing the supply of care workers. Vacancies in the care sector have surged 52% in the past year*, with care businesses struggling to hire and retain staff. This is pushing care homes to hire healthcare professionals from more expensive agencies.
Research by Knight Frank shows care homes with lower care ratings are less profitable than highly-rated ones. One major reason for this is that care homes rated as inadequate are not permitted to take on any new local authority-funded residents, leading to lower occupancy levels.
