Hotel Finance

Looking to Invest in a Hotel?

With the hotel sector continuing to perform well in the economy and Revenue per Available Room (RevPAR) growing, investor confidence in the sector is soaring. And, as a result, the amount of funding available to investors is ever-increasing.

Hotels typically offer sustainable income streams, attractive returns and frequent opportunities to add value to the investment, which are all aspects that lenders and investors will look at and appreciate. However, despite the success of the sector, the hotel industry is season and can be unpredictable which means some of the more traditional lenders are hesitant to lend to hotel investors. 

So How Do I Get a Mortgage for a Hotel or B&B?

Before you apply, the main thing to know is that most lenders will only fund experienced operators with a minimum of 2 or 3 years in the industry.

If you want to buy your first hotel, there are still lenders out there that will look at your application, but you must have at least specific hotel-related experience – even if you’re planning on putting managers into the property to run it for you. You will benefit from having a registered management qualification like an NVQ Level 4 and if you don’t have this, then you may need to consider recruiting an existing hotel manager to join your team and put them on the mortgage application. 

What Types of Hotel Purchase are There?

There are two main types – freehold and leasehold.

If you can afford it, a freehold provides an asset but can have a large impact on your business capital
that could be invested elsewhere. When purchasing a freehold hotel, the more successful and desirable the location the more it will be preferred by lenders.

However, if you’re looking at buying a leasehold hotel, lenders will often require tangible security like your home or any other property that you may own. If you don’t have any of these, then there are lenders that will offer an Enterprise Finance Guarantee loan, giving you the backing of the government. It should also be noted that the loan term that a lender will offer you is unlikely to be longer than the remaining lease.

What Sort of Rates Will I be Looking at?

Like any mortgage, it varies; but you’ll be looking at a starting point of around 2% above the Bank Base Rate with arrangement fees ranging from 0-2%. The maximum term that most lenders will consider will be between 15-25 years and interest-only terms tend to be available on a 6-12-month basis with loan-to-values varying between 55-70%. Though, if you have enough supporting security, you may be able to borrow more than 70%. 

How Do I Apply?

To begin your application, you will need to speak to a mortgage broker who has access to a wide panel of lenders so that they can get the mortgage product most suited to your circumstance.

You will need documentation like the accounts for the hotel that you’re looking to finance and an overview of your background experience. There are quite a few other bits that you’ll need like any CQC reports, which can be daunting if it’s your first one, so it will benefit you to speak to someone who can walk you through the process.

Whether you are planning to purchase a hotel or expand upon one that you already own, contact one of our hotel finance experts below to get your application rolling or if you have any further questions.