At the start of 2026, hotel debt markets across the UK and continental Europe continue to be characterised by cautious stability. Lender appetite remains focused on high-quality assets, experienced sponsors, and clearly articulated strategies. While underwriting remains conservative, both UK and European lenders are actively deploying capital for well-structured opportunities, with refinancing activity continuing to dominate transaction volumes.

Interest rate stability in both pounds sterling and euro markets has improved visibility for borrowers and lenders alike. Traditional banks remain selective but engaged, while private credit continues to provide flexibility for more complex or transitional loans.

1. Market Overview

Macroeconomic Environment

UK economic growth remains extremely modest, with GDP expanding at 0.1% quarter-on-quarter. 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. 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, the Euribor remains stable into Q1 2026, while inflation has eased to 2% Year-on-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.

Hotel Performance

European RevPAR growth remained positive throughout 2025, averaging 3%. While this represented a deceleration from the post-pandemic surge of 2024, the figures underscored the resilience of leisure demand despite persistent geopolitical headwinds. Southern Europe continued to lead the pack with Spain, Greece and Portugal outperforming the average. The Nordics and Eastern Europe also traded well. Conversely, the German market continues to face operational challenges, though a limited pan-European supply growth of under 1% in 2024 has helped maintain a floor for performance. Looking toward 2026, a projected uptick in luxury supply may finally temper the exceptional RevPAR gains seen in the high-end sector, leading to a more normalised performance curve.

2. Lending Landscape

UK Commercial Bank Lenders

UK banks remain active but disciplined. Senior sterling-denominated debt is typically available at loan-to-value ratios of 55-65% 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. Guarantees remain a frequent requirement for development financing.

European/EURIBOR-Linked Commercial Bank Lenders

European banks continue to play a significant role in hotel financing at the start of 2026. Senior euro-denominated facilities are commonly structured at 55-65% LTV, with margins of E+165-350bps and tenors of 5-7 years for stabilised assets. 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.

Private Credit

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

Covenants & Structure

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, amortisation and distribution restrictions remain common features, with flexibility negotiated on a deal-by-deal basis.

3. Notable Transactions

UK

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

Continental Europe

In Q4 2025, we, 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.

4. Market Outlook

Looking ahead through 2026, 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.

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.

5. Strategic Considerations

Sponsors are encouraged to consider a broad range of capital sources, including UK banks, European lenders and private credit providers, to optimise structure, pricing and execution certainty. For euro-denominated or cross-border financings, careful management of currency exposure and real interest costs remains essential.

Conclusion

At the start of 2026, the hotel debt market is stable but selective. While underwriting remains conservative, lenders across the UK 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.

Please get in touch if you would like to discuss any opportunities.

About HVS

HVS, the world's leading consulting and services organization focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries, was established in 1980. The company performs 4,500+ assignments each year for hotel and real estate owners, operators, investors, banks and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a network of some 60 offices and more than 300 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. hvs.com.

Tim Barbrook
Head of Debt Advisory
HVS