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Bridging finance for hotels

Bridging loans for hotel and care homes

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 25th June 2019* | Published: 27th February 2019

We get countless enquiries from borrowers who are keen to secure bridging finance to invest in hotel or care home properties, and if that’s something you’re considering, you’ve come to the right place.

This article tells you everything you need to know about bridging finance and how it can be your springboard to investing in these specific property types.

The following topics are covered below…

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Hotel bridging loans

There are a number of reasons why a hotelier or a property developer with interest in the hotel sector might consider taking out a bridging loan, and they include…

  • To expand or renovate a hotel they already own
  • To add another hotel or guest house to their portfolio
  • For a hotel development project
  • To close a deal involving a hotel purchase that need to be completed quickly

Using a bridge loan to renovate/expand a hotel property

You may have a hotel that is a sustainable investment, operating at a profit - but expanding or refurbishing a property like this can require serious capital. Perhaps timing is of the essence as the hotel would be unable to continue running without essential renovations, or you need to expand urgently to cater for increased demand ahead of peak season.

In these scenarios, a bridging loan can offer a lifeline by delivering the renovation/expansion funds quicker than other forms of borrowing. They are offered on a short-term, interest only basis and usually must be repaid within 12 months or less, although longer terms do exist.

Exit strategy is of paramount importance to bridging lenders, and in this instance, the exit would likely be a commercial remortgage based on the property’s post-renovation value.

Using a bridging loan to add another hotel or guest house to a portfolio 

Perhaps you’re an experienced hotel operator with a number of leisure properties on your books. You’ve got your eye on a new hotel property, but don’t have the funds to table an offer in the immediate term and another buyer is threatening to pip you to it. Bridging finance can provide you with fast capital to place a rival offer.

To give another example, maybe you’re planning to offload one of your under-performing hotels and use the capital to purchase another in a more profitable area, but are yet to find a buyer for the property you’ve put on the market. A bridge loan can provide the capital you need to purchase the new hotel before your existing guest house sells.

In this scenario, the exit strategy could be either the sale of the hotel you already own - if this fits in with the time frame - or a commercial remortgage on the new property.

One thing to keep in mind if you’re an experienced hotel operator with a portfolio of properties is that it may be possible to take out bridging loans with up to 100% LTV (loan to value) by securing the loan against some of the other properties you own. Most lenders will be happy for you to put up extra security, but be aware that failing to repay the loan could result in multiple properties being repossessed, and extra valuation fees may be incurred.

Using a bridging loan for a hotel development project

Along with speed, another reason to choose bridging finance is the flexibility it offers. For example, it is possible to use a bridge loan to secure a property most lenders would consider unmortgageable - whether that’s because it’s a shell of building or simply lacks a kitchen.

A bridging loan would give you the capital required to convert the building into a habitable hotel, before seeking a commercial remortgage as the exit. Alternately, you could bring the building up to scratch and sell it to another hotel operator at a profit to settle the loan.

Bridging finance for care homes

Bridging finance aimed at developers and investors in the care sector work in much the same way hotel bridge loans, and borrowers typically take them out for the same reasons.

Such as…

  • To purchase a care home as an investment
  • To refurbish a care home they already own (upgrade equipment, expansion, etc)
  • To develop an unmortgageable property into a care home
  • To add another care home to a portfolio

Bridging loans for care homes also function in the same way as hotel bridging loans, so the information in the above section applies to this market sector.

Read on for information about hotel and care home bridging LTV, eligibility and more - or make an enquiry to speak with a whole-of-market bridging expert who can connect you with the best lenders for somebody in your personal circumstances.

Why choose a bridging loan over a commercial mortgage?

A bridging loan might be a more viable alternative for purchasing a hotel or a care home than a commercial mortgage in many of the scenarios we have outlined above. To summarise, bridging finance could be a solution in circumstances where timing is of the essence, such as buying a property at auction, or where commercial mortgage lenders cannot offer enough flexibility - perhaps the property is uninhabitable and requires renovation.

The advisors we work with have also helped borrowers use bridging finance as a workaround solution for temporary bad credit/cashflow issues, allowing them to buy a property and exit via a commercial remortgage when their short-term eligibility problems have been rectified.

How are hotel and care home bridging loans different to residential?

Well, for starters your choice of lenders could be somewhat restricted as not all bridging providers are willing to lend on commercial properties, due to the added risk.

The following may apply to the ones which do…

  • Might insist on extra solicitor’s checks to ensure the necessary licenses and regulatory requirements are in place.
  • Some will give your exit strategy additional scrutiny to ensure it’s water-tight.
  • May request to see a business plan to assess the viability of the investment.
  • Some charge higher valuation fees for a commercial bridging loan.
  • Most charge higher rates if the bridge loan is for commercial purposes

Due to the choice of lender being restricted, whole-of-market access is essential to find the best deals, and the advisors we work with have exactly that. Get in touch and they will help you find the lender offering the most favourable rates for somebody in your circumstances.

What is the maximum LTV on hotel and care home bridging loans?

The maximum LTV on any bridging loan is 70-75% at most bridging lenders, and the same percentage will apply to commercial deals that are perceived as low risk and although capped at 70% to 75% on the individual property you can still utilize equity in other assets if required.

If your hotel or care home investment is assessed as high risk, the LTV ratio may drop to between 50% and 60%, meaning you could be forced to stump up a deposit of over 50%.

Regulated vs. unregulated bridging lenders

Bridging finance lenders and brokers can be broadly divided into two categories: regulated and unregulated - and if you’re seeking a hotel, care home or any other type of commercial property, for that matter, it’s the latter you should seek out.

Regulated bridging providers are regulated by the Financial Conduct Authority (FCA) and the loans they offer are geared towards borrowers who are planning to live in the property they need the capital for, giving them extra protection against miss-selling or bad advice.

Unregulated bridging providers, meanwhile, specialise in commercial borrowers and can offer them more flexibility as well as the right expertise. For example, with an unregulated lender you could take out a hotel bridge loan based on the property’s potential profitability, rather than your current income, which may be a lower figure.

The whole-of-market advisors we work with have access to the best unregulated bridging providers in the business, so make an enquiry to be connected with them.

Hotel and care home bridge loan eligibility

All bridging loans, whether commercial or otherwise, are assessed on a case-by-case basis and most providers base their lending decisions on the level of risk and viability of the investment. However, providers reserve their best rates for borrowers with the following…

A strong exit strategy

You’re unlikely to get a bridging loan without a clearly evidenced exit strategy, and where hotels and care homes are concerned, it will usually be a sale or commercial remortgage.

The lender will want to see proof that the property will either sell or is remortgageable for the relevant amount. They will look at factors including location and property type when assessing whether there are any variables that may put off buyers/remortgage lenders.

Above all, they will want to see that your plans for the bridging finance are achievable. The more likely they are to deliver the capital for the exit, the lower the risk on the lender’s part.

Clean credit

It is possible to secure a commercial bridging loan with bad credit as there are lenders who cater for customers with adverse, but your choice of providers will be slimmer.

Some bridging lenders might turn you away because you fall into two niche categories - commercial and bad credit - and are therefore seen as higher risk. If your exit strategy is a remortgage, bad credit is more problematic as the underwriters will be mindful of the possibility of further adverse building up during the loan term.

For access to the specialist lenders who cater for bridging borrowers with adverse credit, make an enquiry and the whole-of-market advisors we work with will connect you.

Experience in property

Not all bridging lenders will insist on experience in property, but it will certainly help your case at some lenders if you’re investing in the hotel or care home sector. If you have a strong track record in these industries, the provider will likely view your application as lower risk.

If it’s a complex development project, some lenders will insist on seeing evidence of your past projects before granting capital. That said, it may be possible to secure a bridging loan for these purposes with no experience, but some lenders will hit you with higher rates in these circumstances,or may ask you to put up additional security to safeguard the loan.

A good security property

Bridging loans are usually secured as first or second charges (although the latter is less common) on a property you’re buying or one you already own. The more likely the security property is to cover the loan amount plus the interest via a sale or remortgage, the more likely the lender is to offer favourable rates.

Expect them to scrutinise how sellable/remortgagable the property is, taking factors such as location and the viability of the business into account.

It is possible to put up more than one property as loan security, and this might even grant you access to 100% LTV bridging deals, but some lenders will expect you to pay for a separate valuation for each security property, under these circumstances. 

A healthy deposit

As is the case with mortgages, putting down a larger deposit can help offset any risk associated with some commercial deals. A minimum deposit of 30-35% of the property’s value is usually required for any bridging agreement, but if you’re in a position to put down 40% or more, it could help you lock down more favourable rates.

Speak to a hotel and care homes bridging loans expert

If you have questions about bridging loans for hotels and care homes and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the bridging broker with the right expertise for your circumstances.  - We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 25th June 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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