One of the most important parts of running any kind of hospitality business is finance, whether that’s getting a mortgage to buy a hotel or carrying out renovations to 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.
In this article:
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 there are a lot of lenders 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, so be prepared to pay at least a 25% deposit, often more – a maximum LTV (loan to value) 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 then it may be possible 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 on a case by case basis 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 focussed less on your own financial status and more on the prospects and/or performance of the business. Mortgages for aparthotels (serviced accommodation) would be broadly along similar lines and would likely need a specialist lender.
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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 typically vary significantly from between 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, while higher LTV requirements, under-performing 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. There are fewer lenders who consider small hotel mortgages worthwhile, meaning they often come with higher interest rates.
With such variation between lenders and terms it really does pay to have a broker finding 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 who has extensive experience of securing commercial hotel mortgages. They will not only have an in-depth understanding of the marketplace, but they’ll also have existing relationships with lenders and be able to negotiate the best rates on your behalf.
All of the advisors we work with have been pre-vetted, so we’ve done the hard work for you of making sure 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.
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How much your mortgage will cost
Understanding hotel mortgage rates is important, but for day to day financial planning you’ll need to know how your rate translates into monthly repayments.
Enter a few key details about your loan into our hotel mortgage calculator to work out how much you will be repaying. You can adjust the loan amount, rate and term to see the impact this could have on monthly affordability.
Hotel Mortgage Calculator
This calculator can tell you how much your hotel mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate (between 3.5% and 6% is average for this type of finance), and our calculator will do the rest.
Total amount paid at end of term:
Get started with an expert broker to find out how much they could help you save on your mortgage repayments.
As mentioned above, the strength of your business case will be the key factor which will largely determine whether your application is successful.
In addition, lenders will also look closely at the following criteria when assessing your eligibility:
- Industry experience: If you have already a number of years experience of 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 you’re buying an existing hotel, expect a lender to focus on the current revenues per available room (RevPAR) and also the average daily rate (ADR) charged. If these both show positive returns this will help your application
- Location: Is the hotel you’re looking to buy in a tourist-heavy area? Is it near convenient transfer hubs, entertainment centres etc? This could make the difference in the eyes of certain lenders.
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Other ways to buy a hotel
Getting a commercial mortgage isn’t the only way to buy a hotel, there may be other finance options depending on your situation.
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.
If you’re building a hotel from scratch or carrying out significant refurbishments to an existing building then 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 to have 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 then 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 carry out hotel refurbishments rather than buy a whole new hotel then there may be other lending options 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 to obtain. 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 different possible ways to finance a hotel and with rates varying so significantly between lenders it’s vital that you have the support of a broker who has specific experience in mortgages for hotels. Their specialist knowledge and contacts make them perfectly placed to find you the very best deal and potentially save you a lot of time and money.
Give us a call on 0808 189 2301 or make an online enquiry and we’ll look at your particular needs and match you with the broker we think is best placed to help you. Our broker matching service is completely free, with no obligation.
Speak to a hotel mortgages expert
Maximise your chance of approval with a specialist in hotel mortgages
Yes, as strange as it sounds, hotel rooms are a legitimate investment. When you buy a hotel room you earn a percentage of all the income it brings in through bookings, with everything managed through the hotel, making it a very hands off way to invest. This type of niche investment is a cash only option however – you won’t be able to get a mortgage to buy a hotel room.
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