Getting a B&B Mortgage

Discover how to finance a bed and breakfast and all the mortgage options available.

What type of mortgage do you need for a B&B?

A commercial mortgage is usually needed to finance a bed and breakfast business, although there can be exceptions.

It all comes down to the percentage of the property that’s classed as residential and the percentage classed as commercial. If more than 40% of the property is used purely for residential purposes, then you may be able to use a standard residential mortgage, often benefiting from lower mortgage rates in the process. Any less than this will require a commercial deal.

There is also the middle ground in the form of a semi-commercial mortgage, which again arrives with a different set of rules and rates.

Choosing the right type is crucial, not only to ensure you get the best rates but also so that you comply with the mortgage terms, which will vary by lender and stipulate exactly how you can use the property.

Eligibility criteria

If you need a commercial mortgage, you’ll likely come across some unique eligibility criteria:

Hospitality experience

Most lenders will expect to see that you have some experience in the hospitality sector before they grant you a mortgage. This isn’t always the case, but it’ll be easier to be approved if you have a successful business track record.

Conversely, if you’re planning to buy the bed and breakfast purely as an investment, you’ll need to show that you’ll be hiring someone with appropriate experience to manage the business.

Business plan

Whether running the B&B yourself or not, you must show lenders a robust business plan. This includes profit projections, any renovation requirements, an understanding of the market and your competition, and clear marketing plans showing how you’ll achieve a high occupancy rate (and, therefore, higher profits).

This is particularly important if it’s an entirely new enterprise. Most lenders will want to see that the bed and breakfast has a successful trading history – ideally at least two/three years of profitable accounts – but if you’re turning a property into a bed and breakfast for the first time, you’ll need to show a clear route to profitability.

The same applies if you’re buying a failing business and hoping to turn it around.

Deposit requirements

You’ll typically need a deposit of between 20%-40% to finance a commercial mortgage for your B&B. The exact deposit required will often depend on the lender and your specific borrowing profile – if you’re seeking a higher loan-to-value, you’ll likely need to show that you have a strong income away from the business.

Personal finances

Remember that your personal finances, including your income, asset position, and credit history, will also be closely scrutinised. A poor credit history doesn’t necessarily mean a rejection. Still, it could mean higher mortgage rates and/or less favourable terms overall, and you’ll likely need to seek specialist providers.

You must check your credit files beforehand to know what you could come up against.

How much will it cost?

Typically, rates and fees are higher for commercial mortgages than for residential deals, but you can use our calculator to better understand financing costs for your B&B.

How to get a mortgage for a Bed and Breakfast business

B&B mortgage lenders have specific eligibility criteria, so getting the right expert support is important to put you in the strongest possible position.

Get in touch, and we can match you with a broker who has experience in securing mortgages for B&Bs who can help you:

Gather your documentation

This isn’t just ID, bank statements, and personal income details for a residential mortgage – you’ll need to go a lot deeper, including trading accounts, occupancy rates, and income projections if it’s an existing business. Including a marketing plan as part of your business strategy is a good idea to show how you’ll maintain and grow your income.

Showcase your business experience

Lenders are all about risk, so give yourself the best possible chance of getting the best deals with a portfolio highlighting your relevant skills and experience. Someone who has already run half a dozen thriving B&Bs is much more likely to get a mortgage than someone new to the industry.

Identify the right lenders for you

This is where your broker earns their stripes. There’s a lot of variation in the commercial mortgage market and often a lot more scope for negotiating terms on a case-by-case basis. Your broker can look at your exact requirements and find the best deals.

Which lenders offer guest house finance?

A good number of lenders can offer commercial mortgages for B&Bs, but terms vary significantly.

Lenders include:

• Barclays
• Nationwide
• Lloyds Bank
• Natwest

The pool of lenders is much slimmer if you’re looking to use a standard residential mortgage, with just six providers available.

What are the alternatives?

A commercial mortgage isn’t the only option to buy a B&B.

Here are a few alternatives you could consider:

Development Finance

Development finance could be an option if you’ve got to undertake major renovation works or start a bed and breakfast business from scratch. The main advantage over a commercial mortgage is that funds are taken in stages as needed, so you only pay interest on the amounts released.

You’ll need a clear exit strategy to repay the loan, normally remortgaging to a standard commercial mortgage.

Bridging loan

Commercial bridging loans are short-term, like development finance, but the full amount is released upfront. These loans can usually be arranged much quicker than a mortgage and are great for buying a property at auction.

Releasing equity

If you have other properties you could release equity from, this could help with a deposit or even fund the purchase completely. Speak to a broker to see if this remortgaging strategy could work for your portfolio.

Unsecured business loan

If you’re investing most of the capital and only need to borrow a small amount, an unsecured business loan could be an option. Usually, for amounts of £25,000 or less, unsecured loans can quickly be arranged and don’t require any security, which is ideal if you only need funding for minor renovations.

How Online Mortgage Advisor can help

Financing a bed and breakfast has its challenges, but a specialist broker can help you overcome them and get your hospitality dream underway.

Our unique broker-matching service will pair you with an advisor who’s perfectly placed to find the mortgage you need. We work with many brokers who specialise in B&B mortgages, and all you need to do is give us a few details. We’ll do the legwork to find them.

It’s free, and there’s no obligation, so make an enquiry or call us on 0330 818 7026 to get started.