Looking to finance a hotel purchase? Hotel mortgages are available & the requirements are easing! Find out what they are & what to do next in our guide.
Are you looking to purchase an existing hotel business or start a new hotel business?
No impact on your credit score
Author: Pete Mugleston - Mortgage Expert, MD
Updated: March 18, 2022
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.
The following topics are covered below...
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.
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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.
Hotel Mortgage Calculator
This calculator can tell you how much your hotel mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate (between 3.5% and 6% is average for this type of finance), and our calculator will do the rest.
Total amount paid at end of term:
Get started with an expert broker to find out how much they could help you save on your mortgage repayments.
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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.
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.
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.
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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 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 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.
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.
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.
Get Started with a Broker
Maximise your chance of approval with specialist advice from an expert in Hotel Mortgages.
Yes, this should be fine, as long as there is a significant amount of time left on the lease. The minimum amount of time required may vary, so check the details of this with your potential lender.
Yes, it’s possible. You may need to go through a specialist lender and you should be prepared to get less competitive interest rates, but bad credit isn’t necessarily a deal breaker.
You’ll improve your chances if you’ve got a larger amount of money to put down as a deposit, have other assets you can use to back the loan or if you can show a strong track record in the hotel industry.
You can’t buy a hotel if you have literally nothing, but if it’s a case of being asset rich and cash poor then you may be able to get a commercial hotel mortgage with a 100% LTV – i.e. no deposit – by securing it against an existing asset such as another investment property.
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Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!