Mortgage Advisor & Director
Head of Bridging and Commercial
If you’re looking to invest in a hotel, guest house or B&B, you might be wondering how you go about obtaining the right type of finance.
Read on to find out what type of mortgage you need to buy a property to operate in the hospitality industry, and how Teito can help you find the right one.
Can you use a mortgage to buy a hotel or guest house?
Yes you can use a commercial mortgage to buy a hotel. For a guest house or bed and breakfast style property, you’ll usually need a semi-commercial mortgage if you also plan to live in it.
Commercial mortgages aren’t regulated by the FCA (Financial Conduct Authority), but semi-commercial mortgages typically are when 40% of the floorspace or more of the property is for residential use. This may apply to some guest houses, so it’s important to be clear on the percentage split of a mixed-use property.
Hotel ownership can be a lucrative business endeavour, but there are a range of considerations to be made before you purchase your first property. Keep in mind that most lenders will prefer that you have some experience in the hospitality industry before you take out a hotel mortgage.
How do these mortgages work?
As with any commercial mortgage application, lenders will expect you to put together a robust business plan to support your hotel or guest house mortgage application. This will need to demonstrate your industry experience to date and future profit projections for the new property.
Here are some of the main criteria that commercial lenders will be looking for you to meet when you apply for a mortgage for a hotel or similar property:
Lending criteria
- Deposit - Commercial mortgages tend to have a maximum LTV of around 75% although you may find 60-70% is more realistic when it comes to financing a hotel. This means you’ll need a deposit of around 30-40%, although it’s usually possible to borrow more if you secure your lending on a high value asset
- Financial history - Lenders will want to look at both your personal finances and credit history, and those of your business, especially if you’re already a hotelier or operate a similar hospitality-based company
- Experience - There are a number of accreditations required to run a hospitality business in the UK, so most lenders will be more comfortable if you already own or have managed hotels. If you plan to hire a manager to run the establishment for you, lenders will likely want to see their credentials in the industry too
- Legal compliance - You’ll need a number of legal certifications in place, such as licences, permits
- Property specific criteria - Lenders will look at the location and state of repair of the property, as well as demand for the type and class of hotel locally. Those is high footfall areas, such as cities, are likely to be considered lower risk than rural property that relies solely on marketing
- Occupancy - The potential occupancy rates will be reviewed carefully, including the GOPPAR (Gross Operating Profit Per Available Room) and ADR (Average Daily Rate)
How to get a hotel mortgage
Mortgages for hotels and guest houses can be difficult to arrange, as there are a wide range of factors for lenders to consider. This means that speaking to a broker with experience of arranging both commercial and semi-commercial mortgages in the hospitality industry is a good move.
As Teito, we can help you to maximise your chance of a successful application and ensure that you find the most suitable commercial mortgage for your business at the best rate available.
You can book a free, no-obligation chat with a hotel mortgage specialist below:
Connect with a hotel mortgage expert today
How much can you borrow?
Commercial borrowing is bespoke to the individual application, so it’s difficult to predict how much you could borrow without knowing the specifics of your business and the hotel or guest house you plan to purchase.
You can typically borrow up to 70% LTV (so of the full value) of the property, so if, for example, you purchased a guest house that was £250,000, at 70% LTV you could borrow £187,500 and would need a deposit of £62,500.
To assess your affordability for a commercial mortgage for this purpose, the lender will review the protected operating profit of the hotel business to ensure it is sustainable.
What rates should you expect?
Commercial lenders don’t quote mortgage interest rates given that each application is reviewed on its own merit. Rates on hotel mortgages are higher than they are for residential mortgages, but exactly how much higher yours will be will depend on the LTV, the strength of the investment and your experience in the hospitality section.
Speak to a broker to find out what kind of rate you are likely to qualify for.
Things to consider
There are a number of things to consider that will both help you to obtain suitable finance, and improve your chances of operating a successful hospitality business. These include, but are not limited to:
- Profitability - RevPAR (revenue per available room) is the metric used to evaluate the ability to fill all available rooms in a hotel at an average rate. It’s therefore important to consider this when drawing up your business plan and deciding on the ideal hotel or guest house for you. UK RevPAR is currently strong, particularly in London, and is expected to grow during 2024.
- Licensing - It’s important to have all of the licences that you may need to operate a hotel or guest house before you apply for a mortgage, as lenders will want to see evidence that you can operate legally. This may include licences to serve food and alcohol, parking permits and more specific documentation, dependent on your intended facilities.
- Experience - If you’re new to the hospitality industry, it’s best to employ a manager with substantial experience in the day to day operation of a hotel or guest house to help you draw up your business plan. Lenders will also look more favourably on your application if you have employed an experienced hotelier.
- Hotel reputation - hotels with a less than favourable review history may well be cheaper, but many lenders will shy away from a hotel with a bad reputation, as this can be difficult to shift, even with a change of ownership. If you plan to purchase this type of property, it’s important to explain any improvements you plan to make to address previous issues.
Why choose Teito for your hotel mortgage?
At Teito, we have specialist commercial investment advisers with experience in arranging both commercial and semi-commercial mortgages for the hospitality industry.
Here are just some of the reasons hotel mortgage applicants choose us:
- We have access to over 20,000 mortgage deals across the market, including exclusive rates
- Our initial consultation is always free and there’s never any obligation
- We’re rated 5-stars on Google, Trustpilot and other leading review sites
- Our brokers specialise in hotel mortgages and arrange them every day
Ready to book in a free, no-obligation chat with a broker who specialises in hotel mortgages to find out more about your options? Get started here.
FAQs
You can get a commercial mortgage to buy a hotel or guest house in Scotland. Keep in mind, however, that there are different laws surrounding EPC certification on commercial property. This means that property you plan to buy will need to be EPC compliant in order to secure a mortgage.
There may also be some differences in the licensing requirements, especially when it comes to B&B or guest house property. It’s important to speak to a commercial broker with experience in all areas of the UK if you plan to buy in a devolved nation.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.