Hotel commercial mortgages: financing the purchase of a hotel

Rates are among a hotel's largest fixed costs, and lenders deduct the bill when they test whether profit covers the repayments, so check it before you agree a price. In England the Valuation Office Agency sets each hotel's rateable value, and the latest revaluation took effect on 1 April 2026 using values at 1 April 2024. A seller's accounts can therefore show a bill that no longer applies. Increases are phased in by transitional relief, capped for 2026 to 2027 at 5%, 15% or 30% depending on the rateable value, so the full rise may still be to come in later years. Build the current bill, and the bill once relief runs off, into your forecasts. A lender will apply the same assumptions.

Does a hotel get the lower retail, hospitality and leisure multiplier?

Yes in England, if its rateable value is below £500,000. Hotels, guest houses and B&Bs count as hospitality, so from April 2026 one with a rateable value below £51,000 pays the small business retail, hospitality and leisure multiplier of 38.2p and one from £51,000 to £499,999 pays 43p. A hotel valued at £500,000 or more pays the high value multiplier of 50.8p. Scotland and Wales set their own rates.

• Rateable value. The current list entry and how it compares with the last one.
• Transitional relief. How much of any increase is still to be phased in.
• Challenges. Any check or challenge to the valuation in progress.
• Separate entries. Staff cottages or let units rated separately from the hotel.

GOV.UK lists the uses that qualify for the retail, hospitality and leisure multipliers. The main loan is usually a commercial mortgage, and our hotel finance hub covers refurbishment and working capital after completion. Run the figures through Instant Quotes to see which panel lenders fund hotel purchases.

Yes, but it is funded as a property project rather than a hotel mortgage. Lenders size the loan on the value of the finished flats, the cost of the works and your record of similar conversions, and they pay the build costs in stages as the work is valued. Buying with planning permission already granted gives the widest choice of lenders. Buying without it usually means a bridging loan based on the hotel's current value, often as a closed building with no trade, and then refinancing onto development or conversion finance once consent arrives. Budget for the time a planning application takes, because interest runs throughout.

Do I need planning permission to turn a hotel into flats?

In England, generally yes. A hotel falls in use class C1 and flats in class C3, and the Class MA permitted development right that lets some commercial buildings become homes covers class E uses, not hotels, so a full planning application is normally needed. Some seaside councils protect areas of holiday accommodation and resist losing hotel rooms, so read the local plan before you bid. The works also need building regulations approval, and a building of seven storeys or at least 18 metres with two or more homes falls under the Building Safety Regulator.

• Planning. Consent granted, applied for or still to be sought.
• Scheme. Unit mix, floor areas and the value of each finished flat.
• Costs. A contractor's price with a contingency for an older building.
• Experience. Your past conversions or the team you will appoint.

The Planning Portal sets out the planning use classes. Our conversion finance page explains staged drawdowns, and a bridging loan can secure the hotel while consent is pending. Instant Quotes shows a developer which panel lenders could fund a hotel conversion.

A hotel is valued and lent against as a trading business, not just a building. Valuers normally use a profits-based approach: they estimate the profit a reasonably efficient operator could sustain, then apply a multiple drawn from comparable sales. The result includes the building, the goodwill attached to it, and the furniture, fixtures and equipment. That has three consequences for a buyer.

• The valuation moves with trade. A hotel whose profit has fallen will be valued lower, even if the building is unchanged.
• Lenders apply two tests: a maximum loan-to-value, and a requirement that profit covers interest and capital repayments with a margin. The smaller result sets the loan. Hotel lending typically sits below the loan-to-value available on ordinary commercial premises, so the deposit is substantial.
• Lenders lend on the lower of the price and the valuation. If you pay above the valuer's figure, the difference comes from your own funds.

The commercial mortgages page explains the general mechanics; the rest of this page deals with what is specific to hotels.

• VAT on the purchase. A hotel bought as a trading business can often be treated as a transfer of a going concern, so no VAT is charged on the price, but the conditions must be met; HMRC sets them out in Notice 700/9 on transferring a business as a going concern.
• Stamp Duty Land Tax. Hotels in England and Northern Ireland are normally charged at the non-residential and mixed rates, and the purchase price allocation between property, goodwill and equipment needs care. Scotland and Wales have their own land taxes.
• Forward bookings and deposits. Weddings and group bookings already paid for must be honoured; agree how deposits are credited to you at completion.
• Staff. Employees transfer under TUPE, with their terms and any holiday pay owed.
• Licences. The premises licence must transfer and a designated premises supervisor be named; civil ceremony approval and any music licences need checking.
• Contracts. Brand or franchise agreements, booking-site contracts, equipment leases and service contracts that will continue after completion.

Hotels carry high fixed costs, so a modest fall in occupancy can erase much of the profit that supports the loan. Test your plan against a weaker year before committing. Paying for future potential rather than current trade leaves you funding the gap from your own cash. Refurbishment backlogs are routinely underestimated, so keep a contingency outside the purchase budget, or line up refurbishment finance in advance. Personal guarantees are common below the largest deal sizes. If owner accommodation in the hotel will be your home, mention it early, because where living space forms a large share of the property the loan may become a regulated mortgage, which we do not arrange. Smaller properties run by their owners are covered on our guesthouse finance page, and our guide on whether to borrow to buy a business covers the wider decision.