Hotel Mortgages: Commercial Finance for Trading Hotels
A hotel mortgage is a long-term commercial mortgage secured against a trading hotel, guest house or aparthotel. Lenders value hotels on the business, not just the bricks: an EBITDA multiple or a percentage of adjusted net profit sets the figure your loan to value is measured against. Established operators can borrow 60% to 70% of that value over terms of 5 to 25 years, and with additional security the right case can reach 100% funding.
Buying or refinancing a hotel?
Call 03300 100315How do hotel mortgages work?
Hotels sit in the trading business category of commercial lending, alongside care homes and pubs: the property and the business are valued and financed as one going concern. That cuts both ways. A well-run hotel with clean accounts borrows more than its bricks and mortar would justify, because the lender is financing profit. A struggling hotel borrows less than the building might fetch, for the same reason.
Owner-operators buying their own hotel, operators expanding to a second or third site, and investors buying hotels leased to an operating company are all fundable, but through different lenders on different terms. Getting that routing right at the start is most of the job.
How do lenders value a hotel?
Expect the valuer to work from adjusted EBITDA: reported earnings, corrected for a market rate management cost, one-off items and any owner drawings hidden in the cost lines. A multiple, typically 3.5x to 5x for independents and higher for branded and prime-location assets, produces the going concern value. Trading metrics drive the multiple: occupancy, average daily rate, RevPAR trend over three years, direct booking mix versus OTA dependence, and the state of the fabric, because a valuer will deduct deferred capex.
The practical consequence: your accounts are your valuation. Twelve months spent tidying the P&L, evidencing the direct booking mix and documenting refurbishment spend routinely adds more borrowing capacity than any amount of negotiating with lenders.
What loan to value and rates should you expect?
| Scenario | Typical LTV | Indicative pricing |
|---|---|---|
| Established operator, strong accounts | 65% to 70% | From around 2% over base |
| First-time hotel operator, sector experience | 55% to 60% | 2.5% to 4% over base |
| Investment hotel, leased to opco | 60% to 65% | Priced on covenant and lease |
| Additional security offered | Up to 100% of purchase price | Blended, case by case |
Rates and lender criteria are subject to change. Figures correct at time of publication. Always speak to your broker for up to date rates and lending criteria on your specific case.
Lenders stress the debt against a DSCR test, usually wanting cover of 1.4x or better on hotels given the sector's seasonality. Our commercial mortgage calculator models maximum borrowing from your figures.
Owner-operator or investment: which route are you on?
Owner-operators access the deepest pool: high street banks, challengers and specialists all lend to experienced hoteliers, and the banks are cheapest where accounts are strong. First-time operators narrow the pool but hospitality management experience, a sensible business plan and a realistic price still fund at lower gearing. Investors buying a hotel leased to an operating company are underwritten like commercial investment: lease length, tenant covenant and rent cover set the terms, and our large commercial mortgage desk handles portfolio and £5m+ single assets.
Can you get 100% hotel finance?
Yes, with additional security. Where a borrower charges other property, or a vendor leaves value in the deal, the blended loan can reach 100% of the purchase price. We completed a £12.5m 100% commercial mortgage for a branded hotel purchase structured exactly this way, and our 100% hotel finance guide explains the structures, the security maths and the cases where it does not work.
What do lenders want to see in the accounts?
Three years of accounts, current year management figures, and the trading metrics behind them: occupancy by month, ADR, RevPAR, staff costs as a percentage of revenue and the OTA commission line. Branded hotels should bring the franchise agreement; leased hotels the lease. Deferred maintenance is the silent deal-killer, so commission a realistic capex schedule before the valuer writes one for you. Building a new hotel rather than buying one is a different product entirely, covered on our hotel development finance page.
Hotel mortgages: frequently asked questions
How much deposit do I need to buy a hotel?
Typically 30% to 40% of the going concern value. Experienced operators with strong accounts sit at the lower end, first-time operators at the higher end, and additional security can reduce the cash requirement, in the right case to zero.
Are hotel mortgage rates higher than normal commercial rates?
Slightly. Hotels are trading businesses with seasonal cash flow, so margins start around 2% over base for the strongest cases and rise with risk. Pricing follows the accounts more than the asset.
Can a first-time operator get a hotel mortgage?
Yes, at reduced gearing, usually 55% to 60%, with hospitality experience, a credible business plan and working capital behind the deal. A manager with sector track record on the team strengthens the case considerably.
How are guest houses and B&Bs treated?
Smaller hospitality assets fund on the same going concern basis, though below roughly eight letting rooms some lenders treat the property as part-residential, which can open semi-commercial options at better rates.
Do lenders prefer branded or independent hotels?
Brands bring booking systems and revenue predictability, which some lenders reward with higher multiples and gearing. Well-run independents in strong locations fund on comparable terms; weak trading hurts either way.
Can I refinance a hotel to release capital?
Yes. Refinances up to the same 60% to 70% LTV fund refurbishments, second site purchases or partner buyouts, subject to the DSCR holding after the new debt.
What about seasonal hotels?
Coastal and seasonal assets fund, but lenders test the debt against the low season months, not the annual average. Twelve months of banking evidence showing cash management through winter materially helps.
How long does a hotel mortgage take?
Eight to twelve weeks is realistic from application to completion, driven by the going concern valuation and legal work on licences and staff transfer. A bridge can complete a time-critical purchase first, refinanced onto the mortgage after.
Related
Send us three years of accounts and the asking price. We will tell you what the hotel supports, which lenders fit and what the debt costs, before you commit to anything.
Call 03300 100315