In This Article
What is a hotel commercial mortgage?
A hotel commercial mortgage is a mortgage that is used to buy or refinance a hotel or guest house. It may be that you plan on using the hotel yourself to run your own business or plan to own the building and lease it to another individual or company that runs the daily business.
Unless you have the full funds to buy the hotel without finance, you may want a hotel commercial mortgage to make up the shortfall between your deposit and the purchase price.
Here is a good resource to read before opening a hotel.
Why take a hotel commercial mortgage?
There are a variety of reasons that you may need a mortgage for your hotel. It may be that you are buying the property and do not have enough in the way of funds to complete on the purchase without the mortgage.
Another reason is you may have enough for the purchase but want to hold back some of your funds to allow for improvements to the hotel or reserves in case business is slow through certain periods to limit pressure on your cash flow.
It may be that you own the hotel already and wish to refinance the property to carry out improvements to the hotel or already have a commercial mortgage and wish to refinance the property to a better interest rate or more suitable terms (e.g. a longer term on the mortgage to reduce payments).
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Is a hotel commercial mortgage the same as a regular commercial mortgage?
In reality, yes, it is a commercial mortgage that is secured against the hotel but terms / rates / fees may differ to another type of commercial mortgage, for example one that is against an office block.
Here you can find more information on commercial mortgages.
What size deposit will I need when buying a hotel using a hotel commercial mortgage?
The size of the deposit will vary from lender to lender and it may also depend on the scenario, building, applicant etc. Commercial mortgages are usually quite bespoke so the lender needs a full overview before committing to terms.
Expect a minimum deposit of approximately 30% when taking a hotel commercial mortgage but this would be confirmed by a professional mortgage adviser when they assess the situation.
What does the lender look at when applying for a hotel commercial mortgage?
When the lender assesses your situation to decide whether they would consider lending, they will be looking at a range of things. These are but not limited to:
- If the business is already up and going, how is it performing? Is it making a profit? What percentage of rooms are occupied daily? Are there any negative factors to consider, e.g. does the hotel need a makeover to remain popular?
- What are the applicant’s experience if buying a hotel to run themselves? Like any commercial mortgage, lenders need to be confident that the venture will be a success so they can be paid. Knowing the background of the applicant will be essential.
- The location of the hotel, local attractions and any other factors that may change things going forward. For example, if a hotel located near a busy theme park has had historic success as a result of it being close by but the theme park was now closing, this may heavily affect occupancy in the future. These things will need to be taken into consideration.
Who are the hotel mortgage lenders?
The lender for a hotel will often be the commercial side of a bank. This may be a high street one or a private bank / Specialist Lender that can consider hotels. Who ultimately lends will depend upon the situation and that lender’s appetite for the deal.
It may be that your own bank offers this type of mortgage but bear in mind, if they do, you are not getting options from the entire market like you would if you speak with a hotel mortgage broker.
Do you get hotel mortgage brokers?
There are brokers that specialise in commercial transactions with hotel experience and these are likely to be best placed to find you a hotel commercial mortgage.
Brokers like this are working with commercial lenders on a daily basis so they get an idea of which lenders are taking on certain scenarios.
These brokers will liaise with you to find out the details of the hotel, the financials of the business, the people involved, their experience, credit and the goals behind the finance to then match you with a lender that they believe will be most suitable.
Most brokers that can arrange finance on hotels will be members of the National Association of Commercial Finance Brokers.
Hotel commercial mortgages are a complex mortgage so talking to a professional is always advised. I NEED ADVICE can put you in touch with a hotel commercial mortgage specialist for a free consultation if you fill in the contact form.
What are the hotel mortgage rates?
It is very difficult to say as the rates and charges will be bespoke to the individual transaction. They will not be like residential mortgages as they are considered a lot higher risk and commercial mortgages tend to be at a higher rate than that of a residential mortgage.
Rates can be linked to the Bank Of England base rate although fixed ones may be possible depending on the lender. Speak with a hotel mortgage broker to get confirmation of products that may be available for your situation.
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Can I use a bridging loan to buy a hotel?
Bridging loans can be obtained for buying a hotel. Like with any bridging loan, the lender will need to know your exit strategy to come out of the bridging loan at the end of the term. The term is often 6-12 months.
Getting stuck on a bridging loan can cause huge issues so serious thought and advice need to be taken before going down this route.
It may be that you plan to repay the bridging loan by refinancing on to a hotel commercial mortgage, sale of the hotel within 12 months (for example if you believe you are getting the building under value) or sale of another asset to pay off the bridging loan.
If you are looking to buy a hotel, the businesses for sale website may be useful.
Would I get a buy to let mortgage to buy a hotel?
You would not get a conventional buy to let mortgage to buy a hotel but it may be that you get a hotel commercial mortgage on the basis that you are buying the hotel to lease to another person / organisation that is going to run the hotel and simply pay you a rent.
The terms of the mortgage will likely then be different to that of one you planned to run yourself and the lender would be very interested in the tenant going in as they will ultimately be the people generating the money to pay you the rent. If they are not paying the rent, you may not be able to pay the mortgage which could then lead to a repossession.
Find out about general buy to let mortgages for property investing.
Bear in mind, if you were to buy a hotel to then rent out, tax would be payable on your rental income so best to get professional tax advice. Here is a link from HMRC about declaring rental income.
Can I take development finance to build a hotel?
Development finance can be taken to build hotels but this is a very specialist subject. If you are a contractor / builder with a plot of land planning to build a hotel, there are lenders that can release the money over stages to finance the build.
The lenders would need to know your experience, the gross development value of the hotel and have security for the loan. Like the bridging finance, they would need a clear exit strategy for repaying the development finance at the end of the term. Development finance terms is often 12 – 24 months but a broker could confirm this.
Conclusion
If you are looking to buy or refinance a hotel, a hotel commercial mortgage could be the answer.
The mortgages are bespoke to you and the situation and the lender will need to know the full scenario before agreeing to lend.
Getting expert advice should always be priority when looking to fund a hotel.
To speak with a professional hotel mortgage broker, fill in the contact box and I NEED ADVICE will arrange one to contact you for a free consultation.
The information on this page is not tailored to any individual readers and should not be considered financial advice under any circumstances.
If you are seeking advice about a mortgage, you should consult a qualified professional.
