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Commercial Mortgages for Hotels

Looking for a mortgage to start or expand your hotel business? Explore your options for commercial mortgages for hotels. Learn how to secure the best rates and terms to finance your hotel business successfully.
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If you’re planning to purchase a hotel or undertake major renovations to an existing one, finance is the most important factor to consider. 

However, most people do not have enough funds for such purposes, which is why they need to borrow money. And the best way of obtaining funds for this is through commercial mortgages.

Fortunately, many lenders offer commercial mortgages for hotels, so finding a suitable one is not always difficult. That said, it is important to learn all about such mortgages before applying for one, and that’s where this guide can help. 

Mortgages for hotels can be attained by property investors as a source of rental income & appreciation and those looking for owner occupation.  

Mortgages for Hotels – Deposit Requirements

Deposit requirements for commercial mortgages, such as those pertaining to hotels, are more stringent than those for non-commercial ones usually. This is because the risk involved is considerably greater due to the unpredictable nature of the market.

Deposit Requirements for Hotels Mortgage

So, you will have to put down at least 25% of the value of the property as a deposit when applying for such a mortgage. However, the loan-to-value (LTV) for hotel mortgages is generally around 60%. 

Situations Where You Cannot Put Down A Deposit

Sometimes, you may not have any funds available for a deposit. In such circumstances, you can use other assets as security for the mortgage. 

An important thing to keep in mind is that lenders do not have a standard assessment procedure for commercial mortgages, such as those for hotels and other hospitality businesses.

Each application is assessed differently and generally involves a comprehensive analysis of financial projects and business plans. 

Another major difference between commercial mortgages and residential ones is that the eligibility for the former depends largely on the performance and prospects of the occupying business. In contrast, when lenders offer residential mortgages, they are more concerned with your financial situation.

Eligibility requirements for mortgages for aparthotels are similar to those for hotels, and such mortgages are only offered by specialist lenders.  

Hotel Mortgages – Available Lenders And Prevalent Rates

As with the assessment procedure, the rates for hotel mortgages can differ from lender to lender and will also depend on your particular circumstances. The rates have been fluctuating widely in recent times since the base rate has increased and inflation levels are high.

So, each application for a hotel mortgage can have a custom rate determined by the lender. The most affordable rates are offered by high street commercial lenders like HSBC and NatWest to applicants who have good business track records and low LTVs.  

On the other hand, if you have a high LTV, are just entering the hotel industry, or own hotels that are not performing very well, the rates will be higher. And you will need to search for specialist commercial lenders willing to accept the greater risk. 

The loan amount is another factor that can affect the rates charged by lenders. If you apply for a larger loan, more lenders may be willing to offer commercial mortgages for hotels and may also offer more affordable rates.

But not many lenders are ready to offer small loans for such purposes, and if they do, the interest rates will likely be higher.

How To Get A Hotel Mortgage at Best Rates

1. Finding The Right Commercial Broker

The first step to getting a hotel mortgage is to search for an experienced commercial mortgage broker with a reputation for providing reliable service. Such brokers tend to know several lenders and can help select a suitable one, ensuring you get the best rates. 

2. Putting Together Your Application

Before providing a loan, a lender will require evidence that proves your business is likely to achieve success. So, it is vital to prepare information that can prove this, and such information can include marketing and business plans, financial projections, room and occupancy rates, etc. 

Other than that, information such as future development plans, location of the hotel, and industry experience can also help. 

3. Going Through Your Credit File

When applying for a hotel mortgage, it is important to review your credit file to locate any errors and inaccuracies, even with a good credit history. In case of errors, get them rectified as soon as possible to ensure your application is not rejected. 

How Much Does A Hotel Mortgage Cost?

There is no doubt that mortgage rates are important when applying for a hotel mortgage. However, you should pay attention to the manner in which the rates convert into actual monthly payments to ensure proper financial planning. 

Several online loan calculators are available that can help you with this. All you need to do is enter a few details, such as the loan amount, mortgage rate, and term, to find out the monthly cost of the loan.

Hotel Mortgages Eligibility Criteria

The most important factor determining whether your application will be accepted is your prospects and plans for the security. Other criteria that lenders usually consider include:

1. Location

How successful a hotel is often depends on its location, which is why it can affect the decision of lenders to accept or reject your application. Hotels located near tourist-heavy areas and entertainment centres have a greater chance of success.

2. Occupancy Rates

If you plan to purchase an existing hotel, lenders will consider the average daily rate (AVR) charged and the current revenues available per room (RevPAR). A lender may be more willing to accept your application if these are high.

3. Industry Experience

Having experience running hotels successfully and being able to provide evidence of profitability can also increase the chances of getting your application accepted for an owner occupied business.

As a first-time hotel-owner, this may be possible by providing proof of experience in other fields. 

Alternatives To Hotel Mortgages

Bridging Loans

While waiting for the sale of a property or business, you can get a bridging loan for short-term funds.

It can be obtained much more quickly than a mortgage and can be used to buy hotels through auctions.

Such loans are available for one to three years and are more flexible than mortgages but can be costlier.

Development Finance 

Development finance can be used in situations where you are undertaking significant renovations and refurbishments to an existing hotel or constructing a new one.

In this case, you get the funds in stages and only have to pay interest on the amount borrowed. The principal amount has to be repaid at the end of the loan tenure.

Remortgage

You can opt for a commercial remortgage if buying a hotel to add to your portfolio of investment properties. However, this may require a significant amount of equity. 

FAQs

1. Is an unsecured business loan better than a hotel mortgage?

If the maximum amount of funds you need is £25,000, an unsecured business loan might be more suitable than a hotel mortgage. It is easier to obtain and can be repaid more quickly, though the interest rate may be higher.

However, a requirement of this loan size is unlikely and suitability will be very dependant on individual circumstances. 

2. Can a hotel mortgage be used to purchase a hotel room?

While it is possible to purchase a hotel room for investment purposes, you usually cannot do so using a mortgage, as there are no mortgages available for such a purchase.

3. What are the advantages and disadvantages of getting a mortgage for a hotel?

A commercial mortgage for investing in a hotel is typically cheaper than many other financing options and can be used to obtain long-term funds.

However, it can take some time for the funds to become available, so it may not be ideal in situations where money is needed urgently. 

Conclusion

A hotel can be an excellent investment for both new and experienced entrepreneurs. It can provide very high returns and can be used to diversify your property portfolio. Hotel mortgages offer a convenient way of investing in such properties. 

Commercial hotel mortgages can be obtained even if you cannot put down a deposit, but they require proper business projections, proof of experience and in most cases securing against other assets.

Also, it can take time to get the funds, so they may not be the best option when you need money urgently. 

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Our goal is simple - to provide most up-to-date and accurate mortgage information to make your mortgage journey as stress-free as possible. Have a question? Fill up the quick form and one of our mortgage advisor will connect with you.

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