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Bed and Breakfast and Guest House Mortgages

How to Get a Mortgage for a Bed and Breakfast Business

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: December 9, 2021

How do I finance a bed and breakfast business?

As this is a very traditional industry, the good news is there’s lots of opportunities to access information and lending expertise.

If you’re looking for a B&B mortgage solution, read through the information below then make an enquiry with us so we can arrange for a commercial mortgage broker to speak with you directly.

Can you get a mortgage for a bed and breakfast property?

Yes. There are lenders who offer finance for B&Bs but the type of mortgage you need in this scenario will depend on several factors, including how much of the property’s square footage is commercial space.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects.

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Do I need a commercial mortgage for my B&B or should I use a residential mortgage?

A commercial mortgage is the most appropriate type of lending for anyone looking to buy a property for their business or commercial activity, whereas a residential mortgage is best suited for the purchase of a property with the intention of living in it.

There are some quite clear distinctions between when to use a commercial mortgage and when to use a residential mortgage in the UK.

However, there are a few instances where these lines can sometimes appear blurred. This is particularly the case for B&B mortgages.

Most B&B proprietors also live at their guest house. So, if you’re looking to buy a bed and breakfast business, do you need a residential mortgage or commercial mortgage?

The answer comes from how much of the property is used as a commercial concern and how much is used as personal space.

If the area of a B&B property used for residential purposes is more than 40% then a residential mortgage can be used.

However, if it is less than this then a commercial mortgage will be required.

There might also be a scenario where you need to opt for a semi-commercial mortgage due to the mix of residential and commercial floorspace the property contains.

You can read more on these in our guide to semi-commercial mortgages.

Why is choosing the right mortgage type so important?

Choosing the wrong product type is a fairly common mistake made by B&B proprietors but it can also prove to be quite a costly one.

Because interest rates are normally more favourable for residential mortgages than for commercial a lender may conclude that an applicant has been dishonest in order to get a lower rate.

If such a conclusion is reached a lender could call in the mortgage on the basis of a breach of covenant meaning you would need to pay back the amount borrowed. It could also make it difficult for any future borrowing requirements.

This is why it’s extremely important to seek the correct advice from an experienced adviser. If you’re looking at how to finance your guest house, make an enquiry with us and we can arrange for a specialist to contact you directly.

How can I secure a commercial B&B mortgage for my guest house?

Running a B&B has become a highly desirable career choice pursued by many, in particular, those considering semi-retirement.

The good news is, if you’re looking at making the jump into a B&B business, many lenders will have the knowledge and expertise to assist with any lending requirements you have.

How do lenders assess B&B mortgage applications?

When lenders review applications for commercial B&B mortgages the first thing they will want to understand is how much experience you have in this particular sector.

The more experience you have, the more favourable a lender will consider your borrowing needs.

A lender will also want to know you carry all the appropriate licenses to run such an establishment. If your intention is to run a B&B business as an investment then a lender will want to know your plan for hiring somebody with the appropriate experience to manage the day-to-day business.

If you have little or no experience of running a guest house, don’t panic, there are still some lenders who will consider your application.

However, what they will want to see is a robust business plan and clearly thought out profit projections.

Any business plan would need to include any renovation requirements (and how they will be funded), a detailed understanding of your local market and how you intend to succeed versus your immediate competition.

This should also incorporate any marketing plans you have to hit your key occupancy rate targets.

The busier your guest house is, the more profitable it should be and, as a result, your mortgage payments should look much more affordable to a lender.

If you’re looking to secure a mortgage for a B&B business or an existing proprietor looking for possible refinancing options or to add to your portfolio, make an enquiry with us and we can arrange for a specialist in this area to get in touch.

How much trading history do I need for a B&B mortgage?

Most lenders will be reluctant to approve finance for a B&B mortgage without a strong previous trading track record. The majority will want to see the previous 2-3 years accounts for the bed and breakfast business you are looking to purchase or raise finance for, however, some may accept less than this.

If you’re buying a bed and breakfast business for the first time and the previous records show a poor trading record with low occupancy rates there are some specialist lenders who will consider your application.

This would be based on your ability to demonstrate a clear route to profitability under your new ownership and management team.

How much deposit do I need for a B&B mortgage?

Generally, most lenders require a deposit of between 20%-40% for commercial mortgages depending upon the level of risk they deem to be taking and the type of commercial mortgage requested.

For B&B mortgages most lenders will require a deposit of 40%, some will request 30% and a few will allow 25% based on the strength of the business’ trading accounts, future profit projections and its location (this will have a bearing on occupancy levels) as well as your profile as a borrower.

Other than a commercial mortgage, what options are available to finance my bed and breakfast business?

Taking out a commercial mortgage isn’t the only way to buy a B&B property. There are other funding options you could explore, including…

Unsecured business loans

If the amount you need to finance your B&B business is a fairly minor amount (less than £25,000) it may be more viable to consider a shorter-term option such as a business loan which would not require any security for the lender and could be arranged fairly quickly.

This might be viable if you already have some capital to invest, but need more.

If the amount you require is larger than £25,000 the options outlined below may be more suitable alternatives to a commercial mortgage, depending on your circumstances.

Bridging loans

If you need to complete your B&B business transaction quickly then bridging finance may be a solution as this form of borrowing is designed for such situations.

As the name suggests, bridging finance is a ‘bridge’ between a purchase and a clearly defined exit strategy. This could mean that by the end of the bridging loan term (usually 12-36 months) you decide to refinance your lending with a commercial mortgage or you intend to sell your bed and breakfast business.

Development finance

Development finance could be a consideration if your intention is to build your bed and breakfast property from scratch or you need to fund a major renovation to the premises you’ve acquired.

This type of borrowing shares some similarities with bridging finance. The key difference is that the total amount you borrow is released in staged drawdowns as the building construction or renovation takes shape.

The benefit of using development finance is that you only pay interest on the amounts that have been released to you and you can build the B&B to your own specifications (assuming you have the means and expertise to do so).

Releasing equity from other properties or assets

If you already own a large portfolio of business properties (or assets) you could also consider releasing the equity from within this portfolio to fund any future purchases.

This option would negate the need for any significant cash outlay for a deposit as would be the case for a commercial mortgage.

Can I get finance for my Guest House business with a poor credit history?

poor credit history can, no doubt, cause problems with how much a lender may be prepared to lend you for a guest house commercial mortgage, depending on the type of issue you’ve had and when it was registered.

In short, clean credit isn’t always a must for commercial lenders but it could help you get the best guest house mortgage rates.

Some lenders might offer unfavourable rates or turn the borrower away if there’s bad credit on file, but there are specialist commercial lenders who cater for individuals and businesses with various forms of bad credit.

Why you should speak to a commercial mortgage broker

At Online Mortgage Advisor we can offer you a first-class service tailored to your own specific needs with access to the most experienced brokers available that:

  • Have whole of market access
  • Have excellent relationships with B&B lenders
  • Can offer bespoke advice to customers who are in the market for a B&B
  • Are OMA accredited advisors
  • Have completed a 12 module LIBF accredited training course

Speak to a commercial mortgage expert

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an online enquiry.

Then sit back and let us do all the hard work in finding the 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.

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!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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 information 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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