The UK hotel debt market is open, liquid, and aggressively priced — but only for the right borrower, in the right place, with the right story. Lenders are responding to a capital market that looks less like an orderly system and more like a beauty contest — with a curious line-up of sponsor–asset propositions hoping to win their attention: the opportunistic fund backing a value-play with capital ready to deploy; the large portfolio trades that still turn heads despite complexity; the prime city and gateway hotels fronted by long-term owner-operators with strong covenants; and, on the periphery, a few strategic buyers stitching together single-asset bolt-ons. In this landscape, winners are not defined by whether an asset is ‘performing’ in the conventional sense, but by whether it fits the much narrower credit models’ lenders are now running. The right profile can draw multiple competitive term sheets; the wrong one — even with similar EBITDA — can find it tough to get past lending committees.

The Contest for Capital

Prime London and Edinburgh assets backed by top-tier sponsors are the crowd favourites, though some are watching the latter closely for any sign of softening performance. If banks compete for profile mandates, margins can compress below 2%, especially in the Capital, and ICR floors move to the more flexible end of typical parameters. Deals in the £40–75 million range are often executed bilaterally, generally cutting timelines and preserving pricing advantage. Liquidity is deep, asset scarcity is real, and the medium to long-term prospects for strong long-haul demand — which typically favours London — is giving lenders predictable, room-led income they’re willing to underwrite aggressively. Among this set, lender appetite is notably stronger where the sponsor can demonstrate a track record of NOI stability and a credible, funded capital investment plan. Sponsor reputation applies even in the most competitive sub-markets, turning a frontrunner into an easy winner.

The stage looks very different in regional UK, where the lighting is harsher, and judges are harder to impress – albeit limited supply of lending opportunities in London and Edinburgh is displacing strong demand into prime provincial markets. Large regional portfolios are dealing with a wider spread in rates, tighter LTV caps, and more conservative ICR floors. Covenant structures are layered with step-ups and heavier amortisation. Accommodation demand is patchier and harder to predict — event-led spikes followed by rapid normalisation, corporate business that is more domestic and price-sensitive. Location premiums apply before a P&L is even reviewed. Without many recent large-scale comparables, every deal is bespoke — more scrutiny, more time, rarely better terms. 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. Some regional portfolios have earned a reputation as wildcards — crowd-pleasers with market presence and flashes of talent, but performances that don’t always land when the spotlight is on. Others are the redemption arcs — once the crown-wearers of the circuit, now showing their age, in need of a serious makeover, but with the bones and pedigree to return to the top with the right backer and investment. In both cases, with a strong, trusted sponsor or advisor fronting the bid, they can be recast as contenders credit committees will take seriously.

The Narrowing Definition of Value

Across both tiers, the definition of “bankable” NOI has tightened. Hotels are still, after all, an inflation hedge you can sleep in. Underwriting skews heavily towards predictable, profitable, room-led income — 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 get credit only with multi-year track records and contractual mitigants; F&B is fully bankable only in well-positioned full-service hotels or destination hotels which can fully leverage captive audiences; and MICE, though recovering, is only partially credited given hybrid work, shorter booking windows, and softer forward visibility. Even in strong local markets, forward projections for these revenues are often haircut, and only sponsors with demonstrable, repeatable ancillary success — particularly in F&B and MICE — can narrow the discount.

The impact is material. Two hotels with identical EBITDA can have very different lending outcomes: one with a 70%+ room-led mix will be underwritten close to actual NOI; one with heavy spa and MICE reliance may be modelled down by 15–20%, wiping out leverage headroom. Governance discipline, staged and funded capex, and liquidity reserves can soften but not eliminate these hits. The narrowing definition of “bankable” is pushing owners to reframe asset strategy as a qualification exercise for debt, not just a pursuit of operational improvement.

Macro conditions are keeping the filter tight. Inflation may ease to around 3.5% by mid-2026, with SONIA drifting from 4.2% to roughly 3.5% in Q1 2026, with base rates likely to end the year near 4.0% — still a high starting point for debt costs. Operating expenses are locked in at elevated levels: wages are 5.6% higher year-on-year, business rate relief has been rolled back, and input prices, while off their peaks, remain above pre-inflation norms. 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.

Aligning Strategy with the Lending Lens

This underwriting discipline is shaping buyer strategy. Even equity-rich bidders are reluctant to move without pre-cleared debt terms. In competitive single-asset sales above £25 million, deliverable financing is often the first hurdle — ahead of the asset profile itself. If lender-defined cashflow can’t support the intended price, bidders have walked away early. Stabilised income still matters, but only after it’s been translated into the lender’s version of net cashflow. And for owners considering disposal, the logic flips: if lender assumptions make a buyer’s pricing unworkable, vendors may choose to bridge the gap — through price or structuring — or risk stalling the process entirely.

Asset management decisions — from rebalancing revenue mix to regearing leases — are increasingly made with a debt-market lens, because every point of room-led share gained, margin improvement, improves bankability and supports stronger liquidity on exit. Strengthening sponsor credentials is a value lever in itself: better governance, reporting, strategic foresight, and capex planning can lift the whole platform’s terms.

Winning Terms Favour the Prepared

While most institutional-grade hotels will get a term sheet in today’s high-demand environment, the winning differentiator is how many, how competitive, and at what price. With new hotel supply largely benign, refinancing dominates deal flow, driving strong competition among lenders for bankable assets and proven sponsor mandates — compressing margins, stretching leverage, and delivering terms as competitive as they are likely to be in this cycle. For others, the real risk is letting today’s competitive pricing and leverage slip away as lender books refill and the market drifts back up to its equilibrium. The current environment creates scope to negotiate terms and position non-core revenues more favourably, but only when supported by clear operating evidence, well-crafted business plans, contractual mitigants, and disciplined delivery plans.

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. The rest — some of them strong operations by any normal measure — will have to adapt or accept suboptimal terms. Capital is available and, in the right circumstances, competitive. But it is not indiscriminate. The lenders are picking the winners, and their mindset is reshaping transaction strategy, deal flow, and capital allocation across the UK hotel sector. In 2025, debt availability follows credibility, not aspiration — and passing that test is the effective cost of capital.