Hotel Mortgages

Owning and running a hotel, guesthouse or B&B is a dream for many people, but if you’re looking to buy or renovate a hotel you may be unsure of how to get started securing finance.

In this guide we’ll take you step by step through the hotel mortgage process, giving you all the information you need to find the right broker, put together a strong application and turn your hotelier dreams into reality.

Can you get a mortgage to buy a hotel?

Yes, you can get a mortgage to fund the purchase or refurbishment of a hotel, as you would get finance for a residential property, you’ll just need a commercial mortgage instead. Commercial hotel mortgages are available for individuals, partnerships and limited companies.

Securing a hotel mortgage is of course a little more complex than simply buying a house as there are a lot more factors at play, making it a riskier proposition for lenders. As such interest rates are generally higher on commercial mortgages than on residential mortgages and average deposit requirements are higher.

Growing numbers of lenders are seeing the opportunity in the staycation trend and with the right planning and support from an expert commercial mortgage broker you should be able to find a competitive hotel mortgage deal that’s perfect for your new project.

What kind of rates to expect

A typical interest rate for hotel finance would be roughly 2% higher than the Bank of England’s base rate, which is currently 4.5% (May 2023), but the exact deal you qualify for will be assessed on a bespoke basis.

Hotel mortgage rates are always determined on a case-by-case basis and the exact one you’ll be offered will depend on the overall strength of your application.

With good credit, a strong business plan and strong profit projections, you’re more likely to qualify for the best rates on the market, but only if you find the right mortgage lender, first time.

This is something a commercial mortgage broker who specialises in hotel finance can help you with. They will have the knowledge, experience and lender contacts to make sure you get the best deal that you qualify for.

How to get a hotel mortgage a three step guide

Before you start your hotel mortgage application, there are three important steps that can increase your chance of getting a mortgage offer:

1. Overhaul your CV

Buying a hotel is different from buying a house in that the risk for the lender lies not just with the property but with you and your ability to run a thriving hotel business. Your experience is key and putting together a compelling case for yourself can make or break a mortgage decision.

Think both about direct hotel or hospitality experience as well as other relevant skills that could boost your business such as management experience, marketing or events.

2. Polish your business plan

A sparkling business and marketing plan is vital for convincing lenders that you can turn your hotel into a successful, sustainable business, so don’t rely on your vision to communicate itself without the backing of some solid figures.

Profitability is what it’s about, so include everything you need to show how you intend to increase profits and make your hotel a low risk option for lenders.

3. Speak to a commercial mortgage broker

Before you press ahead, find a mortgage broker who specialises in commercial hotel mortgages.

This will save you a huge amount of time and effort trying to figure out which lenders are going to be a good match for you – there really is no point reinventing the wheel here when you can go straight to someone who already has a lot of the answers.

How much it will cost

Try our mortgage calculator below to work out what the repayments could look like on your hotel mortgage.

Key eligibility criteria

Because there are so many more factors to consider, hotel mortgage decisions tend to be made on a case-by-case basis.

Let’s take a look at some of the key eligibility criteria for hotel mortgage lending.

Profitability

The more information you can provide here the better. Ideally you’ll have a minimum of two years of trading history, plus data on room rates and occupancy.

Many lenders will look at EBITDA – earnings before interest, tax, depreciation and amortisation – as the most accurate reflection of profitability. If you’re starting or building a hotel from scratch you’ll need solid projections to show how profitability will be achieved.

Business and marketing plan

Whether the business is turning a decent profit already, lenders will want to know exactly what your plans are for improving business performance and making sure you can meet your mortgage repayments.

Your business and marketing plans should include income projections, opportunities for growth and a clear strategy for tackling any potential hurdles.

Your experience

As we’ve talked about already, your experience as a hotelier is going to be an important factor in assessing the viability of the business.

If you’re going to be an investor rather than a day to day manager, lenders may also be interested in your key personnel and any significant staff changes you intend to make.

Hotel size and location

While there may well be great marketing angles to a retreat in the wilderness, lenders see risk, so a hotel’s capacity, location and transport links are all things that could impact your ability to get good rates on a hotel mortgage.

How a broker can help

Because there are so many different eligibility criteria to think about with a hotel mortgage, you really do need the support of a broker with specialist knowledge who can help you navigate each of the criteria and put together a really strong application.

Going in without this help can increase your chances of being declined, which then impacts your credit rating and makes it harder to try again.

A broker can also help you explore your options fully and act as a negotiator with a lender.

For example you may be able to use existing assets to leverage more favourable rates and terms – a broker with experience of this will be best placed to get you the best deal.

Deposit requirements and terms

Deposit requirements for a hotel mortgage are higher than for residential mortgages because of the higher level of risk involved for lenders. Typically the deposit requirement is between 25% and 40%, depending on how well you meet the eligibility criteria.

Hotel mortgages can be on a repayment basis, interest only or part and part, although repayment hotel mortgages are most common, especially on larger loans.

Some lenders will offer an initial interest only period to allow the business to get established, before switching to repayment. Hotel mortgages are usually over a maximum 25 year term, although some lenders will cap at 15 years.

Alternative finance options

Depending on what exactly you need the money for, there are a good number of alternative options for financing your hotel purchase or renovation.

Asset finance

Asset finance is a loan secured against existing assets and is a useful source of finance if you’re looking to invest in new equipment, fixtures or fittings for your hotel. For a hotel purchase, a commercial hotel mortgage is a better option.

Bridging loan

Bridging loans are flexible and quicker to approve than a mortgage, so are perfect for things like buying property at auction, where quick turnaround time is key.

Bridging loans can be secured for large amounts to fund a hotel purchase, but they are a more short term option than a mortgage, normally between one and three years. You’ll also need an exit plan in place – either to resell or to get a regular commercial hotel mortgage.

Development finance

This type of lending is normally used for a new build or significant refurbishment project.

With development finance, capital is released in stages as the works progress, and you only pay interest on the amount you’ve had to date, so you save money compared to a standard mortgage. As with a bridging loan, you’ll need a solid exit strategy to secure development finance.

Unsecured business loan

For smaller amounts up to £25,000 an unsecured business loan is normally your best option. This might be for small improvement projects such as refitting bathrooms, or the purchase of equipment or furnishings.

Commercial remortgage

If your hotel is going to be the latest addition to a commercial property portfolio, then releasing equity in an existing property via a commercial remortgage could be an option. Just keep in mind that this second property would also be at risk should your new project fail.

Get matched with a specialist hotel mortgage broker

We work with a large number of advisors with specialist knowledge of the hotel mortgage market.

By working alongside one of these brokers you’ll have access to the experience and contacts you need to get your hotel project off to the best possible start.

Give us a call on 0808 189 0463 or make an enquiry and we’ll set up a free, no-obligation chat between you and a specialist commercial hotel mortgage broker today.