Hotel Property Finance: 2026 Market Outlook

Every conversation we have about funding a UK hotel starts in the same place: the trading. A guest house in Cornwall, a branded limited-service block by an airport, a country-house hotel with a busy events diary, all get judged first on the cash the operation throws off and only second on the building it sits in. That is what makes hotel finance its own discipline within the wider hospitality sector, and it is why we built Hotel Property Finance as a single reference point for operators and investors weighing up a purchase, a build, a refinance or a turnaround. Hotel financing rarely fits the mould of general business loans, because the lender is buying into a live trading operation as much as a freehold title. This piece is the market overview. It sets out where demand, investment and lending sit in 2026, then signposts the deeper guides for each route: hotel acquisition finance, hotel development and refurbishment finance, hotel refinance and equity release, hotel bridging finance and hotel portfolio finance.

Where UK hotel demand sits in 2026

Trading is the foundation of every credit decision, so start with the demand picture. CoStar (STR) put UK occupancy at 76.1% over the year to date to July 2025, second in Europe behind Ireland and comfortably ahead of France, Germany, Italy and Spain. Knight Frank’s review of full-year 2025 showed a clear second-half comeback: H1 RevPAR slipped 0.4%, but H2 RevPAR grew 3.8%, with regional H2 occupancy at 79% and ADR up 2.2%. UK regional RevPAR finished the year at GBP 79, up 1.9% on 2024 (Knight Frank, full year 2025). Leisure was the engine, with revenue per occupied room from leisure guests up 6.0% across the year (Knight Frank, full year 2025).

The forward view is steady rather than spectacular. PwC’s 2026 forecast has London RevPAR at GBP 158.80, up 1.8%, on occupancy of 81.6%, with the UK regions up 1.5% (PwC, 2026 forecast). On the demand side, VisitBritain forecasts 45.5 million inbound visits in 2026, up 4% on 2025, spending GBP 35.7 billion, though it flags a likely mid-year downgrade. For lenders, RevPAR, ADR and occupancy are not vanity numbers. They are the inputs that set sustainable earnings, and a stabilised UK hotel is commonly modelled around 70% to 80% occupancy. A steady demand picture across the hospitality sector is what keeps hotel finance flowing, because lenders size a loan against the earnings those numbers imply.

The investment market: volumes, yields and London versus the regions

The transactional market tells lenders how liquid their security is. Savills recorded GBP 5.0 billion of UK hotel investment in full-year 2025, with London alone at GBP 3.0 billion, up 25% year on year and running 41% above its ten-year average (Savills, full year 2025). The shape of that activity matters: single-asset deals made up 85% of volume, up 68% year on year, while portfolio transactions collapsed to just over GBP 750 million from GBP 3.1 billion the prior year (Savills, full year 2025). Buyers wanted to underwrite one building at a time.

Pricing sits well apart by location. Savills noted around 25 basis points of yield compression on prime London vacant-possession and franchise assets in 2025, and prime London cap rates have been running materially keener than the regions, with a gap of roughly 195 basis points reported for H1 2025 (Bay Street Hospitality, aggregating Savills and CBRE). London’s pull is structural: CBRE’s December 2025 European Hotels Destination Index ranked London first of 66 markets, with a composite score around 25% above the next destination (CBRE, December 2025). HVS put London as the most active European city for transactions in H1 2025 at EUR 827 million, ahead of Paris and Berlin (HVS, H1 2025). Knight Frank expects around GBP 100 million of UK hotel assets to come to market in H1 2026, so supply of stock is building.

How lenders underwrite a trading hotel

A hotel is a trading business with a roof on it, so lenders underwrite the cash the operation produces, not just the bricks and mortar. The headline profitability measure is EBITDA, usually refined to an adjusted figure after a market-rate management charge and a furniture, fixtures and equipment reserve, with gross operating profit referenced as the pre-fixed-cost line. From there, the underwriting turns on a handful of drivers.

The first is the trading record itself: higher and more stable RevPAR, ADR and occupancy support more leverage and finer pricing. The second is brand or flag versus independent. A recognised brand or franchise flag brings demand and distribution, while a strong independent or boutique is judged on its own evidenced trading. The third is the operating structure. Freehold or long leasehold supports better security and higher leverage than a short or onerous lease, and an experienced multi-site operator is viewed more favourably than a first-timer. The valuation usually follows a going-concern basis from a RICS valuer, reflecting the income the operation produces, which typically sits above the vacant-possession value. That gap is the comfort blanket: weak trading, a flag loss or an interrupted operation pushes value back toward vacant possession and narrows appetite fast. In short, hotel finance rewards a borrower who can prove the business behind the building, which is why hotel financing sits apart from a standard commercial loan.

Freehold, leasehold and the op-co prop-co question

Structure drives both how much can be borrowed and who borrows it. Freehold owner-operated hotels generally access the best terms. Leasehold hotels are capped lower and depend heavily on the unexpired term and the rent. Many larger deals separate the property-owning company (the prop-co) from the trading operator (the op-co), which changes the security package, the rent cover a lender tests, and which entity carries the debt. Lenders price freehold owner-operated, leased, and op-co prop-co structures differently, so getting the structure right before approaching the market is part of the job. A long, well-drafted lease on sensible terms can still be highly fundable, while a short or rising-rent lease quickly limits both the loan and the buyer pool. We cover the owner-operator route, where the operator buys the freehold of the hotel they run, in its own guide, and the same structural questions run through hotel acquisition finance and hotel refinance and equity release.

Pricing across the capital stack

Pricing in 2026 is anchored to a Bank of England base rate of 3.75%, held since the December 2025 cut. Hotel term debt is quoted as a margin over base rate or a reference rate, so the all-in cost moves with that anchor. The figures below are indicative market commentary, not quotes or offers, and every deal is sized case by case.

Senior term debt typically prices around 2.75% to 4.75% over base or reference rate, broadly 6.5% to 8.5% all-in in the current environment, over 10 to 25 years and often part-amortising. Leverage on acquisition and term facilities usually runs around 55% to 70% of going-concern value, with branded, strongly trading freehold hotels and experienced operators at the upper end and first-time operators often capped nearer 50% to 60%. Lenders typically look for debt service cover of around 1.4x to 1.75x on stabilised EBITDA. Development and major refurbishment is funded in drawdowns, usually around 60% to 70% of cost and up to around 60% to 65% of gross development value, with challenger-bank senior development pricing broadly 7.5% to 10% all-in (Construction Capital, 2026); we set this out in full in our guide to hotel development and refurbishment finance, where development finance is structured around the build and stabilisation period. Mezzanine, at around 11% to 18% a year, tops up the senior layer selectively for experienced operators. Bridging, at around 0.85% to 1.25% a month over up to 12 to 18 months, suits speed-led and transitional situations and almost always needs a clear, evidenced exit, which is the focus of our hotel bridging finance guide. Across all of these routes, the loan is priced against the strength of the borrower and the trading, not the building alone.

What recent deals tell us about lender appetite

The published deal flow backs up the pricing picture. The Hotel Debt Market Briefing for Q1 2026 described UK and European hotel debt as cautiously stable, with appetite focused on high-quality assets and experienced sponsors, and refinancing dominating volumes; it quoted UK commercial bank senior debt around SONIA plus 180 to 375 basis points at 55% to 65% LTV over five to seven years, with base rate at 3.75% (Hospitality Net, February 2026). That is the same shape we see across the senior bands above. At the top end, a syndicate of international banks refinanced a landmark London Southbank hotel with a GBP 290 million senior loan in early Q1 2026 (Hospitality Net, February 2026), a reminder that institutional appetite for prime London hospitality is firmly intact.

Specialist hospitality lenders, challenger banks and high-street banks

Three broad categories fund this market, and matching the deal to the right one is half the battle. Specialist hospitality lenders run dedicated teams that underwrite on EBITDA, RevPAR and going-concern value. These are not generic business loans desks; the teams know the hospitality sector, and they usually carry the deepest appetite for trading hotels, including first-time operators, development, bridging and turnaround. They also tend to be the most comfortable with a borrower whose track record is strong but whose numbers are still ramping up. Challenger banks compete hard on stabilised, well-located hotels with experienced operators. High-street banks are generally the most conservative, focused on established operators with strong brands, freehold security, high occupancy and clear trading histories. We do not endorse or rank any individual lender; the right home for a deal depends on the asset, the operator and the structure.

The twelve-month outlook

The macro backdrop for 2026 is supportive without being frothy. JLL forecasts the highest European hotel investment volume on record for 2026, having seen global direct investment rise 22% on the 2023 trough in 2025, and points to strengthening debt markets, record dry powder and better pricing (JLL, 2026 outlook). CBRE expects European RevPAR growth of roughly 1% to 3% in 2026 and flags the UK as having a disciplined, modest development pipeline at around 5% to 6% of existing supply, which supports values where demand growth outpaces new rooms (CBRE, 2026 outlook).

The headwinds are on the cost line, not the demand line. Knight Frank noted hotel payroll per available room up around 30% on 2019, accounting for about 75% of 2025’s operating cost increases, after the employer National Insurance rate rose from 13.8% to 15.0% in April 2025 (House of Commons Library). That margin pressure is why lenders test cover with headroom and lean toward operators who can defend gross operating profit. Our read for the next twelve months: term debt available for well-traded freehold assets at sensible leverage, real selectivity on weaker trading and shorter leaseholds, and bridging and turnaround capital still flowing where there is a credible exit.

Frequently asked questions

How do lenders value a hotel for finance? Usually on a going-concern basis by a RICS valuer, reflecting the income the operation produces. That figure typically sits above the vacant-possession value, and loan-to-value is measured against it, which is why trading strength directly changes how much you can borrow.

What loan-to-value can I expect on a UK hotel? Indicatively around 55% to 70% of going-concern value for acquisition and term debt, with branded, strongly trading freehold hotels and experienced operators at the top end and first-time operators often nearer 50% to 60%. Leasehold is generally capped lower again.

What is the difference between a brand or flag and an independent for funding? A recognised brand or franchise flag brings demand and distribution and generally supports higher leverage and finer pricing. A strong independent is judged purely on its own evidenced trading, which can still be very fundable with a solid record.

Where to go next

This overview is the starting point. From here we go deeper on hotel acquisition finance, hotel development and refurbishment finance, hotel refinance and equity release, the owner-operator route, distressed and turnaround situations, hotel bridging finance and hotel portfolio finance, each with its own structures and pricing. Hotel portfolio finance, in particular, brings its own questions on cross-collateralisation and how a single facility sits over several trading sites. Whatever stage you are at as a borrower, the team behind the Hotel Property Finance homepage can talk through the hotel financing options for your specific business.

A note on regulation and scope. Hotel commercial and trading finance is unregulated business lending, and we are not authorised by the Financial Conduct Authority. Everything here is general market information, not regulated financial advice, and every figure is indicative market commentary rather than a quote or offer. Where a deal involves a regulated element, we refer it to an appropriately regulated firm. Always take professional advice for your own situation before you commit.