Understanding the Differences Between MV1, MV2, and MV3 in Care Home Finance

Discover the crucial differences between MV1, MV2, and MV3 in care home finance. Understand how these valuations impact lending, investment, and funding decisions.

July 22nd, 2025

Differences Between MV1, MV2, and MV3 in Care Home Finance

Discover the crucial differences between MV1, MV2, and MV3 in care home finance. Understand how these valuations impact lending, investment, and funding decisions

Understanding the Differences Between MV1, MV2, and MV3 in Care Home Finance

Navigating care home finance requires clarity on how valuations influence lending, acquisition, and operational decisions.

Among the most critical concepts in this field are Market Value types: MV1, MV2, and MV3. Each valuation approach serves a distinct purpose, especially in regulated sectors like healthcare.

This article explores the differences between MV1, MV2, and MV3 to help investors, lenders, and operators make better informed decisions when it comes to care home mortgages and finance. Understanding these nuances can be the difference between getting care home finance approved or declined.

What Are Market Valuations (MV) in Care Home Finance?

Market Valuations (MV) are used to determine the value of a care home for financial and investment purposes. These valuations are typically conducted by RICS-registered surveyors and form the basis for lending, acquisition, or internal decision-making.

Overview of MV1: Market Value Subject to Operational Transfer

MV1 refers to the Market Value of a care home assuming it is sold as a going concern, with the business operations being transferred along with the real estate. It includes:

The value of the property
Business goodwill
FF&E (fixtures, fittings, and equipment)

When is MV1 Used?

Most common for going-concern sales
Frequently used by banks and lenders for secured lending
Reflects an open market sale to a willing buyer and seller

Overview of MV2: Market Value of the Property Only

MV2 represents the Market Value of the property, excluding the business operations. This valuation considers:

Bricks and mortar value only
No account of trading performance or goodwill

When is MV2 Used?

Useful for alternative use assessments
Planning for redevelopment or non-care home uses
Risk assessment scenarios

Overview of MV3: Market Value with Trade Related Special Assumptions

MV3 assumes a hypothetical situation where the business is not operating at full market potential, often due to:

Underperformance
Early-stage operations
Unusual trading conditions

When is MV3 Used?

For distressed assets
New or underperforming homes
Where operational assumptions diverge from market norms

Key Differences at a Glance

Feature	MV1	MV2	MV3
Business Included?	Yes	No	Yes (under assumptions)
Goodwill Included?	Yes	No	Limited or adjusted
Use Case	Lending, sale	Redevelopment	Turnaround, risk analysis
Basis	Actual operations	Asset value	Adjusted operations

Why the Right Valuation Matters in Care Home Finance

Choosing the correct market valuation type ensures accurate pricing, risk mitigation, and aligned expectations between buyer, seller, and lender. Mistaking MV2 for MV1 could lead to serious financial misjudgments.

How Lenders Use MV1, MV2, and MV3

MV1 is the benchmark for lending based on going-concern value.
MV2 is typically used for alternative use valuation or exit risk.
MV3 assists in stress-testing or forecasting future value recovery.

Impact on Buyers and Sellers

Buyers may prefer MV1 for transparency in value
Sellers may aim for MV1 to reflect full operational worth
MV3 may be negotiated in deals involving distressed assets

Role of RICS Red Book Standards

All valuations must adhere to the RICS “Red Book” standards to ensure consistency, independence, and regulatory compliance. Understanding how MV1–MV3 are defined in this context is crucial.

Regulatory Considerations

Healthcare regulations impact operational viability and, consequently, valuations. For example, CQC ratings or local authority placements can affect whether MV1 or MV3 is most appropriate.

Tax and Legal Implications

Each valuation type may carry different implications for taxation (e.g., stamp duty, capital gains) and legal documentation (e.g., share vs asset purchase).

Case Study: Financing a Distressed Care Home

An investor exploring a turnaround opportunity in a care home with a low CQC rating would use MV3 to assess viability. Upon improvement, an updated MV1 could unlock refinancing options.

Case Study: Redevelopment Scenario

A developer assessing an old care home for residential conversion may rely on MV2 to evaluate land and building value without business goodwill.

Conclusion

Understanding the nuances between MV1, MV2, and MV3 is essential for sound financial decision-making in the care home sector. Each serves a specific purpose, and choosing the right one can shape funding, acquisition, and investment outcomes.

FAQs

Can a care home have multiple valuations simultaneously? Yes, especially in complex deals or multi-scenario planning.
Which valuation is best for buying a care home? MV1 usually provides the most comprehensive picture.
How often should valuations be updated? Every 1-3 years or upon material change in trading or regulation.
Is goodwill always included in MV1? Typically yes, if it forms part of the going concern.
Do banks accept MV3 for lending? Rarely. MV3 is more for internal assessment and turnaround planning.

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.