UK debt market ‘stable but selective’

LONDON – HVS Europe’s Head of Debt Advisory Tim Barbrook published an insightful note about the state of the 2026 U.K. hotel debt market, calling it “stable but selective.”

He said, “While underwriting remains conservative, lenders across the U.K. and Europe continue to support high-quality hotel assets with appropriate structures and leverage. For well-prepared sponsors, the market offers viable refinancing solutions and selective opportunities as the year progresses.”

He said sponsors should consider a broad range of capital sources, including U.K. banks, European lenders and private credit providers to optimize structure, pricing and execution certainty. “For euro-denominated or cross-border financings, careful management of currency exposure and real interest costs remains essential,” he added.

Barbrook defined the macroeconomic environment in the U.K. as “extremely modest,” with GDP expanding at 0.1% quarter-on-quarter. He said inflation has eased faster than expected and is currently at 3.2% (12 months to November 2025), supporting ever more predictable operating and financing conditions.

Appetite remains strongest for core jurisdictions and assets with strong brand affiliation and operating track records. Resorts also remain a core focus for hotel-specific lenders along with select gateway cities.

Tim Barbrook

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The Bank of England base rate stands at 3.75% – the lowest rate since December 2022 – providing relative certainty around sterling-denominated debt servicing costs.

In the Eurozone, Barbrook said the Euribor remains stable into Q1 2026, while inflation has eased to 2% year-over-year. “This combination has improved transparency around real borrowing costs and supported continued appetite from European lenders for hotel assets in core markets, including France, Germany, Spain and the Netherlands,” he said.

Barbrook said U.K. banks remain active but disciplined. Senior sterling-denominated debt is typically available at loan-to-value ratios of 55% to 65% for prime assets, with margins generally in the range of L+180-375bps and tenors of 5-7 years. “Credit committees remain focused on cash flow sustainability, sponsor track record, and downside protection,” he added. “Guarantees remain a frequent requirement for development financing.”

European banks continue to play a significant role in hotel financing at the start of 2026, according to Barbrook. He said senior euro-denominated facilities are commonly structured at 55% to 65% LTV, with margins of E+165-350bps and tenors of 5-7 years for stabilized assets. “Appetite remains strongest for core jurisdictions and assets with strong brand affiliation and operating track records,” he continued. “Resorts also remain a core focus for hotel-specific lenders along with select gateway cities.”

Private credit remains a key component of the hotel debt market, particularly for refinancing situations involving complexity, repositioning or timing constraints. Barbrook said it is also the most active sector when equity is being taken out of structures – bank lenders can be resistant to support recapitalization. “Activity is concentrated in the £/€30-150 million range, where alternative lenders can offer bespoke structures and execution certainty,” he continued. “Pricing remains above traditional bank debt, but flexibility continues to justify its use in appropriate situations.”

Barbrook added that across all markets, covenant structures remain conservative. Interest coverage ratios are typically set at a minimum of 1.15x, rising to 1.35-1.40x for regional or secondary assets. “Cash sweeps, amortization and distribution restrictions remain common features, with flexibility negotiated on a deal-by-deal basis,” he said.

Barbrook referenced the early Q1 2026 deal where ING, SMBC and BayernLB coordinated a £290 million senior term loan to refinance the Sea Containers hotel and office building on London’s Southbank. He said the transaction highlights continued lender appetite for large, institutional-grade hospitality assets in core London locations.

In Q4 2025, HVS Debt Advisory secured a large development financing facility for an ultra-luxury hotel and villa retreat near Lisbon, Portugal, providing a bespoke capital structure tailored to the project’s scale and phasing requirements.

Looking ahead through 2026, Barbrook said refinancing is expected to remain the primary driver of hotel debt volumes, with acquisition and development financing remaining selective. “Interest rate stability in both sterling and euro markets is supporting measured lender engagement, although underwriting discipline is expected to remain firm/very firm,” he said.

Barbrook added that assets with strong trading performance, conservative leverage and clear business plans are likely to attract the most competitive terms. “Sponsors are increasingly engaging with lenders well in advance of maturity dates, reflecting a more proactive approach to capital planning,” he concluded.