B&B Mortgages

Find out how to get a mortgage for a bed and breakfast and how to secure the best rate.

What type of commercial property are you looking to mortgage?

Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Jon Nixon

Reviewer: Jon Nixon

Director of Distribution

Updated: April 8, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

April 8, 2024

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

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

You will usually need a commercial mortgage 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.

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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 track record of running successful businesses.

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 running of the business.

Business plan

Whether you’re running the B&B yourself or not, you’ll need to 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 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 you have a strong income away from the business.

Personal finances

Bear in mind that your personal finances, including your income and asset position and your credit history, will also be closely scrutinised. A poor credit history doesn’t necessarily mean a rejection, but it could certainly mean higher mortgage rates and/or less favourable terms overall, and you’ll likely need to seek specialist providers. It’s important to check your credit files ahead of time so you know what you could come up against.

How much will it cost?

Typically speaking, both rates and fees will be higher for commercial mortgages over residential deals, but you can use our calculator to better understand financing costs for your B&B.

Bed And Breakfast Mortgage Calculator

This calculator can tell you the monthly and overall cost of your mortgage, based on the loan amount, interest rate, and term length.

Enter the amount you're borrowing
£
Between 3.5%-6% is the average rate for this type of mortgage
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Enter the mortgage term, 25 years is the average but lenders can offer shorter and longer terms
years

Your Results:

The monthly repayments on a mortgage would be

The total amount paid at the end of your mortgage term would be

Get started with an expert broker to find out how much they could help you save on your mortgage repayments.

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How to get a mortgage for a Bed and Breakfast business

B&B mortgage lenders have specific eligibility criteria, so it’s important to get the right expert support 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 if it’s an existing business, occupancy rates and income projections. It’s a good idea to include a marketing plan as part of your business strategy to show how you’ll be maintaining and growing 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 really 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 deals best suited to you.

We're so confident in our service, we guarantee it.

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Which lenders offer guest house finance?

There are a good number of lenders able to 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 if you’re starting a bed and breakfast business from scratch. The main advantage over a commercial mortgage is that funds are taken in stages as you need them, 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 things like 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 kind of remortgaging strategy could work for your portfolio.

Unsecured business loan

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

How Online Mortgage Advisor can help

Financing a bed and breakfast isn’t without its challenges, but a specialist broker will be able to help you overcome them so you can get your hospitality dream underway.

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

It’s free and there’s no obligation, so make an enquiry or call us on 0808 189 2301 to get started.

Ask Us A Question

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

Ask us a question and we'll get the best expert to help.

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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 Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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