Commercial Mortgage Guide to Buying a Hotel: Deposit, Valuation and Lender Criteria

Buying a hotel with a mortgage: what to expect

A hotel purchase is usually financed with a commercial mortgage, because the property is used to generate income rather than to provide a home. While the process is similar in broad terms to other commercial lending, hotel mortgages are typically assessed with a stronger focus on the business performance and the viability of the income stream.

In practice, that means your application is likely to be judged on both:

• the property (location, condition, valuation)
• the hotel business (trading history, occupancy, pricing, and your plan to improve or operate it)

What type of mortgage do you need for a hotel?

For most hotel acquisitions, you’ll be looking for a commercial mortgage rather than a residential product. Many lenders consider hotel purchases, but terms and appetite can vary depending on factors such as:

• whether the hotel is trading or needs repositioning
• the tenancy/management structure (if applicable)
• the experience of the buyer or operator
• the loan-to-value (LTV) and overall risk profile

Deposit and LTV expectations

Hotel mortgages often require a higher deposit than residential lending. It’s common to see expectations of around 25% deposit or more, which can translate to a maximum LTV of roughly 60% in many cases.

That said, outcomes can differ. If you have additional assets to support the deal, or if the hotel’s trading position is strong, it may be possible to structure the finance differently.

If you have limited deposit

If a standard LTV isn’t achievable, lenders may consider alternatives such as:

• a higher LTV (where the risk can be mitigated in other ways)
• additional security or support from other assets
• a deal structure that reflects the hotel’s income and your ability to service the debt

Because hotel lending is often case-by-case, the strength of your overall proposal can be just as important as your personal financial position.

How lenders assess a hotel mortgage application

Unlike many residential mortgages, hotel lending is frequently driven by the business case. Lenders want confidence that the hotel can generate sufficient income to meet repayments and that the property is a sensible security.

Key areas commonly considered include:

1) Trading performance and income metrics

For existing hotels, lenders typically look at performance indicators such as:

• occupancy (how full the hotel is)
• average daily rate (ADR) (pricing power)
• revenue per available room (RevPAR) (a combined measure of occupancy and pricing)

If these figures show consistent or improving returns, it can strengthen the application.

2) Your experience and operating plan

Lenders often want to understand who will run the hotel and how. Evidence of relevant experience—either within the hotel sector or in closely related hospitality operations—can help.

If you’re new to hotel ownership, some lenders may still consider the proposal, but the application usually needs clearer support, such as:

• a credible business plan
• realistic assumptions
• evidence of how performance will be improved or maintained

3) Location and market fundamentals

Location can affect demand patterns and resilience. Lenders may consider whether the hotel benefits from:

• strong tourist or business travel demand
• convenient access and transport links
• local amenities and attractions

4) Property condition and valuation

Even when the business is strong, the property still matters. Lenders will want assurance around:

• condition and maintenance
• suitability of the building for its intended use
• valuation and security strength

Preparing for the application: what to gather

A hotel mortgage application tends to be document-heavy. The aim is to present a clear, evidence-based picture of both the asset and the income it can generate.

Commonly useful information includes:

• business plan and operating strategy
• financial projections (with assumptions explained)
• trading accounts or management accounts (for existing hotels)
• occupancy and pricing history (ADR/RevPAR where available)
• details of any refurbishment or improvement plans
• information about the buyer/management team and relevant experience
• the proposed purchase price, costs, and how the deal will be structured

Checking credit position

Even though hotel lending is often more business-led than residential lending, your credit history can still influence how a lender views the overall risk. Reviewing your credit file before submitting can help you spot inaccuracies and address issues early.

Understanding the cost: repayments and total borrowing cost

Hotel mortgages are typically priced based on the interest rate, loan term, and risk profile. Because pricing can vary significantly between lenders and deal structures, it’s important to understand what the monthly repayments mean for cash flow.

A practical approach is to model different scenarios using the key inputs:

• loan amount
• interest rate
• term length

This helps you compare options and assess whether the repayment profile remains manageable alongside expected hotel income.

Eligibility criteria: what tends to matter most

While every lender has its own approach, hotel mortgage decisions often come down to a combination of:

• industry experience (or credible plans supported by expertise)
• occupancy and revenue performance (for existing hotels)
• location and demand drivers
• deposit/LTV and the overall risk balance
• the quality of the business case and how realistic the projections are

If you’re buying an existing hotel, lenders may place greater weight on current performance. If you’re buying a hotel that needs repositioning, they may place greater weight on the strength of your refurbishment plan and the credibility of the forecast.

Other ways to buy a hotel (when a mortgage isn’t the only route)

A commercial mortgage is often the long-term solution, but it’s not the only option. Depending on timing, purchase method, and the scale of the deal, other funding routes may be considered.

Bridging finance

Bridging loans can be useful when speed matters—for example, where the purchase is time-sensitive or linked to another transaction.

They’re often structured for shorter periods and can be more flexible than a mortgage, but they may be more expensive overall, so the total cost and exit plan are important.

Development finance

If you’re building a hotel or undertaking significant refurbishment, development finance may align better with how funds are released. Repayments and interest may be structured around the project timeline, with an exit plan typically needed once the work is complete.

Remortgaging an existing property

If you already own property in a portfolio, remortgaging can sometimes provide additional capital for a hotel acquisition—subject to equity and lender appetite. It’s important to consider any early repayment implications and whether the new structure remains affordable.

Financing hotel refurbishments

Refurbishment funding can be approached in a few ways, depending on the size and scope of the works.

• Commercial mortgage or remortgage: may suit larger refurbishment projects or where the hotel’s overall financing is being reshaped.
• Alternative business lending: for smaller projects, some borrowers may consider other types of finance where the process is quicker and the term is shorter.

The key is matching the finance structure to the project timeline and ensuring the cash flow plan accounts for both the works and the repayment profile.

Using a specialist approach to hotel lending

Hotel mortgages sit at the intersection of property finance and hospitality business risk. That’s why the most effective applications are usually those that clearly connect:

• the property security
• the business performance
• the buyer/operator capability
• the realistic plan for how the hotel will trade and repay

A specialist broker can help interpret lender preferences and present the information in a way that aligns with how hotel mortgages are typically assessed.