Getting a Mortgage For a Hotel

One of the most important parts of running any hospitality business is finance, whether that’s getting a mortgage to buy a hotel or renovating an existing business.

In this article, we’ll look at what type of mortgage you need for a hotel, how much it’s likely to cost you and what other types of finance might be an option for you.

What type of mortgage do you need to buy a hotel?

You will need a commercial mortgage to buy a hotel. The good news is that many lenders are open to applications to finance hotel purchases, so depending on your circumstances and with the right broker to support you, there should be a lender who fits your needs.

Commercial mortgage deposit requirements are normally higher than for residential home loans because of the increased levels of risk and uncertainty involved. Be prepared to pay at least a large deposit of 25%, often more—a maximum loan-to-value ratio (LTV) of 60% for a hotel mortgage is not uncommon.

What if you have no money for a deposit?

If this isn’t doable for you, you may be able to get a higher LTV or even a 100% hotel mortgage if you have other assets you can secure against the loan.

Commercial hotel mortgages are normally assessed case-by-case with a more in-depth analysis of your business plans and financial projections. Unlike a residential mortgage, the eligibility criteria for a hotel mortgage are focused less on your financial status and more on the business’s prospects and/or performance.

Mortgages for apart-hotels (serviced accommodation) would broadly follow similar lines and would likely need a specialist lender.

Which lenders offer these mortgages and at what rate?

The exact interest rate you’ll be offered will depend on your circumstances and the type of lender. Rates can vary significantly from 2% to 6% above the Bank of England base rate.

Strong applications with low LTVs and great business track records can expect the lowest rates from mainstream lenders like NatWest and HSBC. At the same time, higher LTV requirements, underperforming hotels or inexperienced hoteliers may need to accept higher rates from more specialist commercial lenders with a higher tolerance for risk.

You’ll also find that larger loan amounts can open up more options and potentially lower rates. Fewer lenders consider small hotel mortgages worthwhile, meaning they often have higher interest rates.

With such variation between lenders and terms, it does pay to have a broker find you the best deal.

How to get a hotel mortgage

You’re ready to turn your dreams of hotel ownership into reality or expand an already thriving hotel empire, but what are your next steps? How do you get a hotel mortgage quickly and simply and avoid paying over the odds?

Here’s how we recommend you do it.

Get matched with a commercial broker

One of the first things you should do is find a broker you trust with extensive experience securing commercial hotel mortgages. They will not only have an in-depth understanding of the marketplace but also have existing relationships with lenders and be able to negotiate the best rates on your behalf.

All the advisors we work with have been pre-vetted, so we’ve worked hard to ensure you’re in safe hands. Get in touch now, and let us match you with the right broker.

Prepare your business case

In terms of eligibility criteria, your lender will be looking for as much evidence as possible to show that the business is going to be successful. The work you do at this stage can mean the difference between a yes and a no and could also affect the rates you’re able to secure.

Prepare as much supporting information as you can, including business and marketing plans, occupancy and room rates and financial projections. Things that can indirectly impact the hotel, such as your industry experience and the location and future development plans for the area, can also be valuable.

Check your credit file

Even if you’re confident that you have a good credit history it’s worth getting a copy of your file before making your mortgage application, just to check for any inaccuracies or any issues that might have gone under your radar.

It’s far better to be prepared than risk having an application declined on the basis of something in a credit check that could have been avoided if you’d known about it.

How much your mortgage will cost

Understanding hotel mortgage rates is important, but you’ll need to know how your rate translates into monthly repayments for day-to-day financial planning.

Enter a few key details about your loan into our hotel mortgage calculator to calculate your repayment amount. You can also adjust the loan amount, rate, and term to see the impact this could have on monthly affordability.

Eligibility criteria

As mentioned above, the strength of your business case will be the key factor in determining the success of your application.

In addition, lenders will also look closely at the following criteria when assessing your eligibility:

• Industry experience: If you already have a number of years of experience running a successful hotel or group of hotels and can provide evidence of clear profitability, this will certainly strengthen your case. Although, a few lenders will still consider you if this is your first venture, particularly if you’ve got a successful business track record in a different field
• Occupancy rates: If buying an existing hotel, expect a lender to focus on the current revenues per available room (RevPAR) and the average daily rate (ADR) charged. If both of these show positive returns, your application will be helped.
• Location: Is the hotel you want to buy in a tourist-heavy area? Is it near convenient transfer hubs, entertainment centres, etc? This could make a difference in the eyes of certain lenders.

Other ways to buy a hotel

Getting a commercial mortgage isn’t the only way to buy a hotel; depending on your situation, you may have other financial options.

Bridging loan

If you only need to borrow money in the short term while you wait on the sale of another business or property, for example, then bridging finance could be a solution. A bridging loan is quicker and simpler to organise than a mortgage, so is ideal for quick purchases such as hotels bought at auction.

Most bridging finance is taken out over 1-3 years, with more flexibility than a mortgage, although it can be expensive, so go through the figures with your broker to make sure it’s a good choice for you.

Development Finance

If you’re building a hotel from scratch or carrying out significant refurbishments to an existing building, development finance could be something to consider. Development finance is similar to a bridging loan, but money is released in stages as the building work progresses, and you only pay interest on what you’ve borrowed so far, making it a cheaper alternative.

Once the development is complete, you would need an exit plan to repay the finance, often through a standard commercial mortgage.

Remortgaging an existing property

If your hotel purchase is an addition to an existing property portfolio, one way to fund it could be commercial remortgaging on one of your existing properties. Depending on how much you want, you’d need to be sure you had enough equity to make it feasible and that you wouldn’t incur any early repayment charges or give up a good rate on any existing finance.

How to finance hotel refurbishments

If you’re looking to refurbish a hotel rather than buy a whole new one, other lending options may be available. A commercial mortgage or remortgage could be one way to go, either on the hotel, you’re refurbishing, or another in your portfolio, or you might want to look at something simpler if it’s for a relatively small amount.

For amounts up to £25,000, an unsecured business loan may be much easier and quicker. Rates may be a little higher than on a mortgage, but you’ll pay it back over a much shorter term, so it will cost less overall.

Speak to a hotel mortgage broker

With so many possible ways to finance a hotel and with rates varying significantly between lenders, you must have the support of a broker with specific experience in mortgage mortgages. Their specialist knowledge and contacts make them perfectly placed to find you the best deal and potentially save you time and money.

Call us at 0330 818 7026 or make an online enquiry, and we’ll assess your particular needs and match you with the broker we think is best placed to help you. Our broker matching service is completely free and without obligation.