Hotel bridge loans: the options available as the holiday scene is upended

Hotel bridge loans are short term bespoke forms of finance that are used for investments in hotels. The investment itself can take shape in many ways.

A hotel bridge loan can be used for the acquisition of a hotel. For example, our commercial bridging loans could be put towards purchasing a hotel and other hospitality assets. Also, auction bridging finance can be used for hotels that may turn up at auction houses.

Also, permitted and light development loans can be considered a hotel bridge loan. Investors can use this finance to upgrade their assets, and draw in higher-paying customers.

Hotel investors can also find specialist loans that can accommodate their specific financial circumstances. Business bridging loans are there for borrowers investing via a corporate setup. Meanwhile, refinancing options are there to help tidy up existing obligations.

But, while there are plenty of bridging options available to borrowers, will there be much demand for them? The hotel industry, similar to other commercial property markets, is facing several challenges. But, at the same time, the outlook for this market is looking somewhat promising.

We will never advise our borrowers on where, or how they should invest. What’s best for them will depend on their circumstances, and they should work with professional financial planners if they feel they need guidance. Still, there are a few key considerations property investors could take notice of when they are looking to expand into the hospitality industry.

What challenges does the hotel industry face?

The hotel industry faces some of the same challenges that are afflicting all kinds of businesses in this economy. Hotels have struggled to find and retain staff in recent years. At the end of 2023, there were 112,000 jobs unfilled in the hospitality industry, according to ONS data[1].

This isn’t helped by the fact that it’s likely very hard for hotels to afford new teams at the moment. Hotels were also hit by our cost of living crisis, with hospitality businesses seeing operating costs jump dramatically in recent years[2].

What’s more, travellers increasingly have a preference for sustainable travel,[3] and incorporating this into their operations may prove costly for hotels. In fact, a recent survey from EHIC[4] found that cost management is a key priority for hospitality executives. They’re also keen to adapt to changing consumer behaviours, overcome supply chain issues, and generally improve performance.

While hotels have had it rough for a few years, the outlook for the industry looks promising, however. An outlook that appears to be recognised by customers.

Hotel investment potential

Economically, our collective situation could be about to improve. Interest rate cuts may be on their way according to Andrew Bailey[5], while we may finally hit the 2% inflation target in mere months[6].

The hotel industry specifically may also have much better days ahead of it. Despite the challenges of 2023, revenue per available room (RevPAR) rose by 12% across the UK, compared to 2022. In London, this growth was just under 20%.

In fact, in London, opportunities abound for those targeting high-end hotel guests. More five-star hotels are popping up across the capital regularly. And, the £1,000-a-night hotel room is now a new normal for travellers, according to The Times[7].

Some commentators believe these expensive options are being utilised by American, Middle Eastern, and other foreign travellers who are benefiting from favourable exchange rates.

What the future holds – securing hotel bridge loans

Looking ahead, hotel businesses in the UK may also be able to benefit from a competitive advantage. The rise of Airbnb and similar options challenged the hotel’s dominance in the holiday scene. Then, the pandemic led to the rise of staycations. This boosted investment in short-term holiday lets and 2nd homes in the process[8].

There was so much investment in fact, that the government felt it needed to step in and temper the market. As homes were bought up by investors in holiday hotspots, fears emerged that locals were being priced out of their own towns[9].

To address this, Jeremy Hunt announced that furnished holiday letting tax perks would be abolished in the 2024 Spring Budget. Also, the higher rate of CGT was also cut[10]. These changes were – largely – made to encourage owners in these troubled towns to sell up, creating more options for local residents.

A new planning class for holiday lets in England was also announced, potentially creating more red tape for investors down the line. But, these measures are solely focused on short-term lets – they will not affect hotels, hostels, or B&Bs[11].

Over the coming years, there may be opportunity for hotel property investors who want to take advantage of our holiday hotspots, just as local Airbnb investors retreat.

For investors who may want to expand in this burgeoning corner of the commercial market, hotel bridge loans will be there to accommodate their plans. At MFS, we can have a hotel bridge loan issued in as little as three days. With sunnier months looming, we want to hear from brokers with eager borrowers on their books.