The UK hotel market is awash with liquidity… but not for everyone. Liquidity is there, pricing is competitive, and refinancing is keeping deal flow alive. But not all hotels are judged equally. In this beauty contest, lenders are the judges, and they are ruthless.
So notes Rachel-Felicia Glenn, associate director at Horwath HTL UK who stresses that winners are not just defined on whether an asset is performing in the conventional sense but rather whether it fits the much narrower credit models that lenders are now running.
“The right profile can draw multiple competitive term sheets. But the wrong one - even with similar Ebitda - can find it tough to get past lending committees,” she says.
Crowd favourites
Prime London and Edinburgh assets are the clear favourites on stage. Backed by international demand and limited supply, these hotels are attracting aggressive competition from lenders, with appetite is notably stronger where the sponsor can demonstrate a track record of NOI stability and a credible, funded capital investment plan.
The stage looks very different in regional UK where judges are harder to impress. Deals in major provincial cities are priced wider, with tighter LTV caps and more conservative covenant structures.
“Covenant structures are layered with step-ups and heavier amortisation. Accommodation demand is patchier and harder to predict. Every deal is bespoke, with more scrutiny, more time and rarely better terms.
Sponsor as differentiator
Beyond the asset, sponsors themselves are now part of the contest and their credentials impact lenders’ decision-making.
“Here sponsor profile is decisive: operational alpha and liquidity buffers can move the dial, but weaker or unknown names face greater scrutiny and potentially markdowns even on otherwise strong assets,” Glenn says.
Sponsors with a track record of delivering stable NOI and transparent reporting can command multiple competing term sheets while weaker or lesser-known names can face tougher scrutiny longer processes and tougher terms, even with strong assets.
“Strengthening sponsor credentials is a value lever in itself: better governance, reporting, strategic foresight, and capex planning can lift the whole platform’s terms,” Glenn says.
Recent refinancings reflect this: Cohort Capital provided a £96m senior loan to refinance two four-star hotels in London and northern England as part of a wider £240m package, praising the assets’ resilience and sponsor strength. Similarly, private credit funds such as NorthWall and BlueWater have stepped in to refinance Shiva Hotels’ BoTree in London, including capex lines to support repositioning.
Redefining “bankable”
One of the toughest hurdles in this contest is lenders’ narrowing definition of “bankable” NOI. Predictable, room-led revenues are prioritised, ideally brand-backed and diversified by segment. Ancillary revenue streams are treated with scepticism: golf is modelled as a loss leader unless long-term profitability is proven and oversupply risk negligible, leisure and spa revenues are discounted without multi-year track records, F&B is bankable only in well-positioned full-service or destination hotels with captive demand, while MICE is acknowledged but only partially credited, given hybrid work, shorter booking windows and softer forward visibility.
The effect is material, Glenn notes. “Two hotels with identical Ebitda can have very different financing outcomes depending on their revenue mix. A property with 70%+ room-led income may be underwritten close to actual NOI while one with heavy reliance on spa or may be modelled down by 15–20%, wiping out leverage headroom.”
Macro pressures
Underlying all of this is a cautious macroeconomic backdrop. Inflation is expected to hover around 3.5 per cent into 2026, while SONIA and base rates remain elevated. Operating costs - particularly wages and business rates – remain higher.
“For leveraged assets, the combination leaves little margin for error. Lenders are building higher-for-longer costs into their models, scaling back credit for discretionary or volatile revenues, and capping leverage tolerance accordingly,” Glenn says
As these challenges continue to weigh, lenders are leaving little tolerance for volatility.
Walk away with the crown
In today’s market, most institutional-grade hotels can still expect a term sheet. But the real contest is about how many, how competitive and at what price. Winners are walking away with aggressive leverage, flexible covenants and compressed margins while losers are left with expensive or overly restrictive terms.
“Active lender feedback shows the hotels able to transact or refinance in 2025 are not necessarily those with the highest revpar or Ebitda growth. They’re the ones whose structure, income composition, and sponsor position align most closely with current lender criteria,” Glenn says.
In today’s UK hotel sector, lenders are picking the winners and their mindset is transforming transaction strategy, deal flow and capital.