Hotel mortgage deposit

How much deposit you need

A hotel mortgage deposit is the share of the purchase you fund from your own equity, with the lender providing the rest. Because a hotel commercial mortgage typically reaches up to around 65 to 70% loan to value on a stabilised, well-trading asset, the deposit is usually around 30 to 35% of the going-concern value. There is no 5% or 10% deposit in hotel lending the way there can be in residential: a hotel is a trading business and lenders require a meaningful equity stake.

This guide is about the deposit for a hotel mortgage as a business purchase. It is not about a deposit a guest pays to book a room.

The reason for the larger deposit is straightforward. A hotel is a trading business whose income can move with the economy, the season and how well it is run, so a lender wants the owner to carry a meaningful share of the risk. A substantial deposit means the borrower has real equity to protect, which aligns their interests with the lender's and gives a cushion if values or trading dip. It is the same logic that makes hotel finance a commercial product rather than a high-loan-to-value residential one.

Why the deposit is set by LTV

The deposit is simply the inverse of the loan to value the lender will allow. If a lender offers 70% LTV, the deposit is 30%. If trading is thinner and the lender caps the loan at 60% LTV, the deposit rises to 40%. The LTV, and therefore the deposit, is driven by how the hotel trades, its tenure, its location and the operator's experience. A strong, branded, freehold hotel with consistent RevPAR justifies a higher LTV and a smaller deposit; a tired, independent or seasonal hotel needs more equity.

What counts as a valid deposit

Lenders need to see that the deposit is real, clean and available. Acceptable sources include cash savings, proceeds from selling another property or business, and equity released from other assets. Borrowed deposits, or funds that introduce a second charge the senior lender has not approved, complicate or block a deal. All sources are checked under anti-money-laundering rules, so be ready to evidence where the money has come from.

• Cash savings held in your name or the borrowing entity
• Proceeds from selling another property or business
• Equity released from an unencumbered or low-geared asset
• Verified gifted or invested funds, with documentation

Expect to evidence the source of funds in detail. Lenders and solicitors must satisfy anti-money-laundering rules, so they will want bank statements, sale completion statements or investment records showing where the deposit came from and that it has been held for a reasonable period. Funds appearing suddenly, or routed through several accounts, slow a deal and raise questions. Preparing this paperwork early, alongside the trading accounts, is one of the simplest ways to keep a purchase on track.

Costs on top of the deposit

The deposit is the largest sum but not the only one. Budget for these alongside it so you arrive at completion fully funded.

Ways to reduce the deposit

Experienced operators have several levers to lower the equity they put in, though each has a cost or a condition attached.

• Mezzanine finance: a top-up layer above the senior loan that reduces the deposit but is dearer and ranks behind the senior lender
• Cross-charging another property you own to provide additional security
• Choosing a stronger or branded asset that justifies a higher LTV
• Improving trading evidence before applying, to lift the LTV the lender will allow
• Phasing refurbishment so the day-one loan sizes against current, not future, value

It is worth being clear about why a lower deposit costs more. Every percentage point of extra borrowing is funded at a rate, and the marginal money, the slice that takes you from a comfortable loan to value to a stretched one, is the riskiest for the lender, so it is priced highest, often through mezzanine. Pushing the deposit down also leaves less equity cushion if values or trading dip, which can turn a manageable setback into a refinancing problem. For many buyers the sounder approach is to put in a fuller deposit on a hotel they can comfortably afford, rather than to gear up hard on a larger one.

Guest houses and smaller hotels

Smaller hotels, guest houses and bed and breakfasts follow the same logic: the deposit tracks the LTV the lender will allow, which tracks the trading and the tenure. Owner-run guest houses occupied as a home can be regulated cases, which we refer to an authorised firm. For trading-business purchases we arrange the commercial mortgage and position the deposit to the most suitable lender.

Deposit for a refurbishment or repositioning

Where you are buying a hotel to refurbish or reposition rather than to carry on as it trades, the deposit picture changes. A closed or underperforming hotel is often funded first with bridging or refurbishment finance, sized against current value or cost rather than the higher value you expect to create. That usually means more equity at the outset, because the lender is not yet lending against the improved trade. Once the works are done and the hotel is trading at the new level, you refinance onto a term mortgage at a higher value, which can release equity and effectively recover part of the deposit. We plan that day-one to exit path from the start so the equity is used efficiently.