Balancing Cost Pressure and Opportunity: How Can Care Leaders Build Financial Resilience?

By David Abbott, Managing Partner at BTG and head of BTG’s national healthcare group

The UK’s population is ageing fast. The number of people aged 65 and over is projected to reach 22.1 million by 2072, according to the House of Commons Library, eventually accounting for around a quarter of the overall population. As this growth piles pressure onto the UK’s healthcare system, with care homes at the coalface, more facilities will need to invest in specialist provision to treat the older demographic and the conditions common in old age.

Why Does an Ageing Population Demand a More Resilient Care Sector?

The responsible approach is to invest in specialised care facilities early, in anticipation of this shift, rather than waiting until demand outstrips supply. As life expectancy increases and patient needs evolve, care homes that don’t adapt risk undersupplying the same population they seek to serve. Old age brings a need for long-term, round-the-clock care, specialist rehabilitative support, and purpose-built environments, all of which demand continuous investment.

For homes already under pressure from higher staffing costs and constrained local authority funding, future investment can understandably feel like a secondary concern. Adapting must be built into long-term financial planning, which starts with acknowledging potential future shifts, being receptive to change, and recognising financial strain early. Financial resilience for care homes begins long before a shortfall appears on the balance sheet.

What’s Driving the Cost Pressures on Care Homes?

In over 30 years of advising businesses through periods of both strain and growth, one pattern holds across every sector: acting early produces the better outcome, whether that is overcoming financial pressure or seizing an opportunity. Care is no exception, particularly during this period of persistent cost pressures fuelled by unsustainable staffing costs, disproportionate funding, and ageing facilities.

Staffing costs. When the National Living Wage rose by 4.1% in April 2026, care homes absorbed higher payroll costs almost overnight. The Nuffield Trust estimates that workforce costs rose by nearly 10% in 2025/26 alone, adding around £2.8 billion to the sector’s wage bill.

The disparity between funding and the cost of delivering care. Fee income is not keeping pace with the cost of delivering care. Local authority care home fees rose by 4.9% in 2025/26 and home care fees by 5.3%, but these increases have largely been absorbed by wage and energy inflation, rather than adding to providers’ margins. Local authorities are themselves under strain, which limits how far fee rates can realistically move in the near term. The Association of Directors of Adult Social Services (ADASS) estimates that councils overspent their adult social care budgets by around £774 million in 2024/25 and have had to take mitigating action to balance their books.

Ageing facilities. With modern stock in short supply, new builds must comply with higher standards that align with long-term sustainability targets and ambitious environmental, social, and governance (ESG) credentials. Care England emphasises the sustainability-first stance embraced by many lenders, where competitive terms are extended in exchange for meeting environmental performance criteria.

Where Is Investor Confidence Heading Despite the Pressure?

From an industry growth perspective, investor confidence remains strong, with capital flowing into UK care real estate in the form of consolidation activity, new construction, and stock upgrades. This is evidenced by Welltower’s appetite to invest £7 billion in the UK care industry, including the acquisition of more than 600 care homes across four portfolios.

According to Barbour ABI, construction contract awards more than doubled in four years, rising from approximately £416 million in 2021 to £1.03 billion in 2025. While bed spaces still sit below 2020 levels, much of that shortfall reflects the replacement of older stock, which underpins the sector’s long-term viability.

What Are the Early Warning Signs of Financial Strain?

Care home finances must be considered beyond the headline figures, which are usually occupancy, EBITDAR, and fee income. In my experience, financial strain shows up gradually, in a handful of operational indicators that, when considered collectively, reveal more than a single metric.

Reserves shortfall. A useful test is whether a home could absorb a difficult quarter, such as a spell of low occupancy, an unplanned repair, or a delayed fee payment, without needing to draw down credit or cut into reserves. A Care Provider Alliance survey of more than 1,180 care and support providers found that 77% were operating with minimal reserves, with many already scaling back planned maintenance and capital investment as a result. When cash reserves are no longer sufficient to cover unplanned expenses, which is common in lifestyle businesses, the time for mitigating action is now.

Widening gap between income streams. Providers in less affluent areas often rely on a smaller pool of self-funded residents to offset lower local authority rates. If that gap widens every year, the underlying fee structure is likely unsustainable, regardless of occupancy levels.

Cost of modernising. UK care homes are ageing fast, and buildings of that age carry meaningfully higher running costs, particularly when the infrastructure requires modernising. While postponing capital works to protect short-term cash flow may be necessary, the longer the work is deferred, the more expensive the eventual fix, and the more exposed to regulatory or energy cost shocks the business is.

Rising dependency on agency staff. While flexibility in staffing costs is normal, a structural and growing reliance on agency cover, rather than occasional use to bridge short-term gaps, signals underlying pay, retention, or recruitment issues that are costly if unresolved.

Tightening terms from lenders. If refinancing conversations are taking longer, requiring more detailed cash flow forecasting, or coming with tighter covenants than in previous cycles, this often signals a downgraded health rating. Lenders are often the first to apply scrutiny before management teams have fully registered the shift.

Combined, these factors signal a growing need to review the home’s financial framework, because if left unaddressed, the financial challenges compound.

How Can Care Leaders Build Resilience Before It’s Tested?

The most useful thing a care leader can do is act early. This starts with treating cash flow forecasting as a forward-looking management tool. Modelling different occupancy, wage, and fee scenarios is critical to contingency planning and gives the board time to devise a Plan B or Plan C. This involves planning early conversations with lenders, investors, and other creditors before time pressures overcome the business and trigger emergency talks.

Refinancing based on a self-governed timeline, with a clear operational improvement plan in hand, tends to produce materially better terms than refinancing under lender pressure. The same applies to fee negotiations with local authorities and care commissioners, as a provider that can demonstrate a clear cost base with supporting evidence has a stronger case than a provider negotiating under pressure. Conducting performance improvement work and reviewing staffing ratios, procurement, energy contracts, and occupancy management are often most valuable when undertaken early and before a mandatory deadline hits.

The homes I’ve seen navigate this period most successfully are the ones that treat financial governance as a continuous exercise, rather than as a response to a covenant breach or a shortfall in capital. A capital investment plan backed by data-led research into upcoming trends, demographics, and demand is usually more fundable and deliverable.

As the UK’s ageing population represents long-term demand for the services care homes provide, the providers best placed to benefit are the ones that treat financial resilience as an early priority.