Yes, you can get a commercial mortgage to buy a nursery, and the market is reasonably well served. Specialist and challenger lenders typically offer **60-70% LTV** on freehold day nurseries at rates between **6.50% and 9.00%**, with terms of 10-25 years. The deal stands or falls on three things: Ofsted rating, occupancy, and adjusted EBITDA.
A nursery mortgage is a trading-business commercial mortgage, not a vanilla property loan. The lender is not just lending against bricks and mortar, they are lending against a regulated childcare business with operational, regulatory and reputational risk. This guide explains how lenders underwrite nursery deals in 2026, who the active lenders are, what documentation you need, and how to present your application to secure the best deal.
Who Is Lending on Nurseries in 2026?
The nursery and childcare mortgage market is dominated by a small group of specialist and challenger banks who understand the sector. High street banks lend selectively, usually to multi-site operators with strong covenant.
**Challenger banks** are the most active group. [Allica Bank](/lenders/allica-bank), [Aldermore](/lenders/aldermore), [Shawbrook](/lenders/shawbrook), [Hampshire Trust Bank](/lenders/hampshire-trust-bank), [Recognise Bank](/lenders/recognise-bank) and **Cambridge & Counties Bank** all have appetite for nursery finance. Cambridge & Counties in particular has notable childcare and education businesses exposure and understands the sector well.
**High street banks** including [Lloyds Bank](/lenders/lloyds-bank), [NatWest](/lenders/natwest), [Barclays](/lenders/barclays) and [HSBC](/lenders/hsbc) lend on nurseries occasionally, generally to established multi-site operators with three or more settings, strong audited accounts and Outstanding or Good Ofsted ratings across the estate. Pricing is usually 50-100 basis points sharper than challenger banks, but criteria are tight and timescales slow.
**Specialist lenders** such as [Interbay Commercial](/lenders/interbay-commercial), [LendInvest](/lenders/lendinvest) and Together cater for smaller deals, complex situations, or borrowers who do not fit mainstream criteria. Rates are higher but lender appetite for unusual structures is greater.
The single biggest filter in the nursery mortgage market is Ofsted rating. An Outstanding-rated setting can attract three or four competing offers. A Requires Improvement rating can take the loan from straightforward to declined in one phone call.
Nursery Mortgage Rates and LTV by Ofsted Rating
Lender pricing on a nursery mortgage is driven heavily by the Ofsted rating of the setting. The table below summarises typical 2026 indicative terms across the active nursery lender panel.
| Ofsted Rating | Typical LTV | Indicative Rate | Lender Appetite |
|---|---|---|---|
| Outstanding | Up to 70% | 6.50% - 7.75% | Strong, multiple lenders |
| Good | 60% - 70% | 7.00% - 8.25% | Good, several lenders |
| Requires Improvement | 55% - 60% | 8.00% - 9.50% | Limited, specialist only |
| Inadequate | Generally declined | N/A | Bridging only with turnaround plan |
Rates are quoted on a 5-year fixed or tracker basis over a 20-year term and assume a freehold purchase by an experienced operator. First-time buyers should expect rates 25-75 basis points higher and LTV capped 5-10 percentage points lower than the figures above. Compare these against general [commercial mortgage rates](/knowledge-hub/commercial-mortgage-rates-uk) to see the sector premium.
The Bank of England **base rate** sits at 4.50% in mid-2026, having eased from the 5.25% peak. Most nursery lenders price off either base rate or SONIA plus a margin of 2.50% to 4.50%. Some offer interest-only periods of 12-24 months for refurbishment or repositioning deals, though full-term interest-only is rare for trading nursery businesses.
How Lenders Value a Nursery: EBITDA Multiples and Vacant Possession
Valuing a nursery is more complex than valuing a standard commercial property because the value of the property is inseparable from the value of the trading business. RICS valuers typically produce three figures on a nursery report.
**Market Value as a Trading Entity (Going Concern)** is the headline number for a profitable, well-run setting. The valuer applies a multiple to **adjusted EBITDA** (sometimes called Fair Maintainable Trade or FMT EBITDA), reflecting normalised earnings stripped of one-off costs and adjusted to market-rate owner remuneration. Typical multiples in 2026 are:
- Outstanding, freehold, growing: 7.0x to 9.0x EBITDA
- Good, freehold, stable: 5.5x to 7.0x EBITDA
- Requires Improvement or declining trade: 4.0x to 5.5x EBITDA
- Smaller nurseries (<40 places): 4.0x to 6.0x EBITDA
**Vacant Possession Value** is the value of the property if the nursery ceased trading, valued as a building suitable for alternative commercial or residential use. This is usually significantly lower than going-concern value, and lenders often cap maximum LTV against the higher of vacant possession or a stressed multiple of EBITDA.
**Market Value of the Property Investment** applies where the nursery is leased to an operator. Here the valuer looks at rental yield, lease length and tenant covenant, in the same way as any other [healthcare property finance](/knowledge-hub/healthcare-property-finance-guide) deal.
What Lenders Look At: Occupancy, Fees and Staff Costs
Beyond Ofsted and valuation, every nursery lender underwrites three core operational KPIs. Get these right in your numbers and your application moves quickly.
| KPI | Healthy Benchmark | Why It Matters |
|---|---|---|
| Occupancy | 80% or higher (FTE basis) | Below 75% suggests demand or operational issues |
| Staff costs / revenue | 55% - 65% | Above 70% squeezes EBITDA and DSCR |
| Fee per session | At or above local market rate | Below market suggests pricing weakness |
| EBITDA margin | 18% - 28% | Below 15% reduces lender confidence |
| DSCR | 1.40x or higher | Below 1.25x typically declined |
Lenders will stress-test occupancy down by 10-15 percentage points and assume staff costs rise in line with National Living Wage. If the deal still services debt at stressed numbers, the loan is much more likely to proceed.
**Staff** ratios are a particular focus because they are both a regulatory requirement (one adult to three under-twos, one to four for 2-3 year olds, one to eight for 3-5 year olds in England) and the largest cost line. Lenders look for evidence of stable, qualified staff with low turnover and adequate cover for sickness and holiday.
The 2026 Sector Backdrop: Free Hours and Demand for Childcare
The nursery sector is in the middle of a structural reshape driven by government policy. The expanded free hours offer (15 hours for 9-month-olds to 3-year-olds from September 2024, with further phased extension since) has driven significant **demand for childcare** while squeezing operator margins where the government funded rate sits below the true cost of delivery.
The practical implications for borrowers and lenders are:
- Occupancy is generally strong, with waiting lists common in family-friendly catchment areas
- Operators with high free-hours dependency face margin compression unless they can charge top-ups for meals, consumables and additional hours
- M&A activity is active among small chains as operators consolidate to spread overhead
- Lenders increasingly want to see a fee model that is not over-reliant on government funded rates
A solid business plan that demonstrates how the setting will manage the free hours mix, recruit and retain staff in a tight labour market, and maintain its Ofsted rating is essential. Lenders read business plans carefully on nursery deals, more so than on most other commercial mortgage applications.
Documentation Checklist
A complete document pack accelerates underwriting and signals professionalism. The standard nursery mortgage information pack includes:
- Last three years filed accounts plus the latest management accounts
- 12-month occupancy schedule by age band on an FTE basis
- Current fee schedule including any top-ups and additional charges
- Staff schedule with roles, qualifications, FTE hours, and pay rates
- Last two Ofsted inspection reports plus any safeguarding actions
- Lease (if leasehold) or freehold title plan
- Local authority registration documents and DBS records summary
- Business plan with three-year forecasts and sensitivities
- Personal asset and liability statements for all directors and shareholders over 20%
- Three months personal and business bank statements
Application Process Step by Step
The full nursery mortgage application process typically takes 8-14 weeks from initial enquiry to drawdown, though challenger banks can move faster on clean deals.
- Broker briefing - share the deal summary, asking price or refinance details, latest accounts and Ofsted report with a specialist commercial finance broker
- Lender shortlist - your broker matches the deal to 3-5 lenders with active nursery appetite based on size, location, Ofsted rating and borrower profile
- Heads of terms - within 5-10 working days you should have indicative terms covering rate, LTV, term, fees, and any conditions
- Full application - submit the complete documentation pack to the chosen lender
- Credit-backed offer - lender credit committee approves and issues a formal mortgage offer, typically 3-5 weeks after full application
- Valuation - independent RICS specialist nursery valuation, usually £3,000-£7,500 depending on size and complexity
- Legals - solicitors complete property, corporate and Ofsted due diligence
- Drawdown - funds released on completion of purchase or refinance
Buy or Refinance a Nursery: Different Lender Lenses
Whether you are looking to **buy or refinance a nursery**, the underwriting approach is broadly the same but emphasis shifts.
**Acquisition** deals attract close scrutiny of the buyer's experience. A first-time buyer from outside the sector should expect lower LTV and a meaningful equity contribution, usually 35-40%, plus working capital reserve and often a deferred consideration to the seller to bridge the experience gap. Experienced operators acquiring an additional setting can typically secure 65-70% LTV on competitive terms.
**Refinance** deals turn on trading performance. A nursery that has improved its Ofsted rating, lifted occupancy or grown EBITDA since the last mortgage was put in place is well placed to secure better pricing, release equity, or fund refurbishment from a capital raise. Many operators refinance every 3-5 years to ride down the rate as the business strengthens.
**Refurbishment** capital can be built into either acquisition or refinance facilities. Lenders will usually fund 60-70% of the refurbishment cost on top of the property loan, drawn against certified progress, provided the post-works valuation supports the total exposure.
Working Capital and Cash Flow Considerations
Acquiring a nursery is not just about the mortgage. Plan for at least 3 months of operating cash flow as working capital from day one. Staff payroll runs monthly while fee income from parents and free-hours funding can lag by a month or more. The first quarter after completion is the highest risk period for cash flow.
For smaller cash needs alongside the main mortgage, **asset finance** can fund kitchen equipment, outdoor play equipment or minibuses without tying up your property facility. Larger refurbishment programmes are best built into the mortgage from day one.
How a Specialist Broker Helps You Get Competitive Terms
The nursery mortgage market is opaque. Few lenders advertise nursery appetite openly, criteria shift quarter to quarter, and the right lender for a 30-place village nursery is rarely the right lender for a 120-place urban setting. A specialist commercial mortgage **broker** with active nursery flow knows which lender is leaning in this quarter and which credit officer to route a particular deal to.
At Commercial Mortgages Broker, we work with the full panel of nursery lenders and structure deals to present the strongest case to each. Our ex-Lloyds and Bank of Scotland background means we understand exactly how a bank credit committee will read a nursery file.
The difference between the cheapest and most expensive credit-backed offer on a single nursery deal can easily be 1.50% on rate and 10 percentage points on LTV. On a £1m loan held for ten years, that is six-figure money for the borrower.
For a no-obligation conversation, [contact our team](/contact) or use our [commercial mortgage calculator](/calculators/commercial-mortgage) to model the numbers. Read more in our [complete guide to commercial mortgages](/knowledge-hub/complete-guide-commercial-mortgages-uk).
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*