Commercial Mortgages
Hotel Mortgages: How Hotel Finance Works
A hotel mortgage funds buying or refinancing a hotel. Lenders lend on the trading figures, so occupancy, room rates, profit and your hospitality experience matter as much as the building.
Written and reviewed by Davi Thakar, CeMAP qualified mortgage and protection adviser Updated
A hotel mortgage is a commercial loan to buy or refinance a hotel. Lenders treat a hotel as a trading business, so they lend on how many rooms you sell, at what price and how much profit is left, as well as the value of the building.
That means the numbers you put in front of a lender do most of the work. A hotel with steady year-round trade and clean accounts gets a very different answer from one that relies on a busy summer and a quiet winter.
This guide covers what lenders check, how hotels are valued, deposits, costs and refinancing. For the bigger picture, see our commercial mortgage guide.
Can you get a mortgage to buy a hotel?
Yes, from specialist commercial lenders. Most want a 30% to 40% deposit, three years of trading accounts and evidence you can run a hotel. Independent, branded, boutique and country house hotels can all be financed. The stronger and steadier the trading, the more lenders will look at it and the better the terms.
What do lenders look at?
| Factor | What it tells the lender |
|---|---|
| Occupancy | The share of rooms sold across the year |
| Average daily rate | The average price paid per room night |
| RevPAR | Revenue per available room, occupancy multiplied by the average rate |
| Other income | Food, drink, weddings, events and conferences |
| Profit | EBITDA after staff, energy, booking commission and repairs |
| Seasonality | How far income drops in the quiet months |
| Experience | Your track record in hospitality or the team you are putting in |
| Building | Condition, compliance and any refurbishment needed |
Branded hotels can be easier to finance because of the booking system and brand standards. Franchise fees reduce profit though, so the lender will look at the numbers after fees.
Which situations do lenders see most?
These are illustrative situations, not Option Finance client outcomes.
First hotel purchase
You have run restaurants or managed a hotel but never owned one. Lenders want your CV, a credible plan and often a bigger deposit.
Show relevant experience clearlySeasonal coastal hotel
Most income comes in the summer. Lenders look at the full year and check you can pay in the quiet months.
Show monthly figures, not just annualRefurbishment plan
The hotel is tired and you plan to upgrade the rooms. Heavy works may need bridging first.
Finance the works, then refinanceAdding a second site
You already run one hotel well. Lenders look at your group figures and management depth.
Your track record opens doorsHow is a hotel valued?
A specialist valuer assesses the hotel on a trading basis. They look at the profit a competent operator could make and apply a multiple, then check that against recent sales. Local demand, competition and the condition of the building all feed in.
The valuer will also note what the building would be worth if the hotel closed. If it could be converted to flats, subject to planning, that gives the lender comfort.
Illustration only
A 20-room hotel sells 72% of its rooms at an average of £95 a night, giving room income of about £499,000. With food and drink, turnover is £700,000 and EBITDA is £175,000. The price is £1.4 million. A lender offering 65%, £910,000 over 20 years at 7.5%, would expect payments of about £88,000 a year. Profit covers that about twice.
How much deposit do you need?
- Loan-to-value: usually 60% to 70% for experienced buyers. First-time hoteliers often need more deposit.
- Term: commonly 15 to 25 years.
- Rates: above residential rates and priced on trading strength and experience.
- Seasonal businesses: some lenders test affordability on the weakest months as well as the annual figures.
What documents will you need?
- Three years of accounts and current year management accounts
- Monthly occupancy, average rate and RevPAR
- Booking channel split, including online travel agent commission
- Staffing and payroll
- Licences, fire safety and food hygiene records
- Your business plan and CV
If the hotel sells alcohol, it needs a premises licence and a designated premises supervisor. GOV.UK explains the rules in its alcohol licensing guide. Staff usually move across to you under TUPE, explained in GOV.UK’s guide to business transfers and TUPE.
What costs should you plan for?
- Stamp Duty at non-residential rates in England and Northern Ireland: 0% up to £150,000, 2% to £250,000 and 5% above. On £1.4 million that is about £59,500. See GOV.UK’s non-residential rates.
- Specialist trading valuation
- Arrangement fee, often 1% to 2% of the loan
- Legal fees, including licensing and employment advice
- Working capital for the first months of trading
Can you refinance a hotel to fund a refurbishment?
Often, yes, if profit covers the higher payments. Light works can sometimes be funded by a straight refinance. Heavier works, or a hotel that is closed for the work, may need bridging first and a refinance once trading picks up. See our refurbishment finance guide and commercial remortgage guide.
Smaller properties with owner’s accommodation are often financed differently. See our B&B and guest house mortgage guide.
Frequently asked questions
How much deposit do I need to buy a hotel?
Usually 30% to 40%. It depends on the hotel’s trading record and your experience.
Can I get a hotel mortgage with no hospitality experience?
It is harder. Lenders usually want hospitality experience or an experienced manager in place, and may ask for a bigger deposit.
How are hotels valued?
On a trading basis by a specialist valuer, using the profit the hotel can make rather than just the bricks and mortar.
Do lenders accept seasonal hotels?
Many do. They look at the full year and may test affordability against the quiet months.
What Stamp Duty applies to a hotel?
Non-residential rates in England and Northern Ireland: 0% up to £150,000, 2% to £250,000 and 5% above.
Can I buy a hotel through a limited company?
Yes, and many buyers do. Lenders usually ask directors for personal guarantees.
Can I refinance a hotel to pay for a refurbishment?
Often, if profit covers the higher payments. Bigger works may need bridging first, then a refinance.
Speak to Option Finance about your hotel
Tell us about the hotel, the price and the trading figures. We will tell you straight which lenders are realistic, how much deposit you will need and how to present the numbers.
Book a free initial consultation using the enquiry form below. See also our commercial mortgage advice and pub mortgage guide.
Talk through your mortgage options
Tell us about your plans and circumstances. Your initial consultation is free.
Some buy-to-let and commercial mortgages are not regulated by the Financial Conduct Authority. Regulation depends on the mortgage type and circumstances.
Talk through your mortgage options
Tell us about your plans and circumstances. Your initial consultation is free.
Written and reviewed by Davi Thakar
Director & Senior Mortgage Broker
CeMAP Qualified Mortgage and Protection Adviser
Davi founded Option Finance with a vision to deliver transparent mortgage advice from a wide panel of lenders. With over 10 years in financial services, he specialises in complex cases including adverse credit, self-employed borrowers with limited trading history, and large buy-to-let portfolios. He works directly on complex cases and explains each option clearly.
Meet Davi Thakar
