The UK and European hotel debt markets in Q3 2025 continue to show signs of stabilisation as rates trend further downward, albeit slowly.

Lending remains selective but continued momentum in refinancing activity is evident, particularly among high-quality assets in capital and gateway cities as well as other prime locations. Private credit continues to play an important role, offering tailored solutions where traditional banks remain unable to underwrite perceived risk.

Key Highlights from the Quarter

Refinancing Activity: High-profile deals include the £75 million refinancing of the QHotels Collection Group’s 19 UK resorts, arranged by a consortium of high-street banks led by Barclays and Santander, and The Social Hub completed an €80 million refinancing deal with BNP Paribas in June 2025 for its properties in Florence and Bologna. These deals highlight appetite from both UK and European banks for hotel assets.

Private Credit Participation: Lenders are increasingly pursuing less conventional opportunities, seeking to generate returns by underwriting situations that traditional banks would typically avoid. Activity is particularly notable in the £/€50-150 million range, offering bespoke structures for sponsors looking to refinance or reposition assets.

Market Liquidity: While transaction volumes remain below pre-pandemic levels, prime assets continue to attract competitive financing. In select instances, lenders are offering the lowest margins seen in over a decade, partially offsetting the slower return to lower SONIA levels.

1. Market Overview

Macroeconomic Environment

UK GDP growth remains challenging, around 0.3% quarter-on-quarter, down from 0.7% in Q1 2025. Inflation in the UK has eased to 4.8% RPI/3.8% CPI. In August, the Bank of England’s base rate was cut by 0.25% to 4%, reducing sterling-denominated debt costs to their lowest level in more than two years, thereby creating a strong incentive to refinance existing debt.

From a European perspective, the three-month EURIBOR rate is materially lower at 2.06%. Eurozone inflation (as measured by the HICP) is at 2.6%. Whilst nominal EURIBOR is positive, real interest costs are still negative (the rate is lower than inflation).

This environment has encouraged refinancing activity for borrowers accessing euro-denominated facilities, particularly for prime and transitional assets as borrowing costs remain relatively low in real terms.

2. Lending Landscape

UK Commercial Bank Lenders

Traditional UK banks remain disciplined, focusing primarily on prime London and gateway city assets.

Sterling-denominated senior debt is available at SONIA+180-375bps, with Loan-to-Value (LTV) ratios of 55-65% for prime assets and 5-7 year tenors.

European/EURIBOR-Linked Commercial Bank Lenders

Senior debt margins for euro-linked facilities are below UK bank debt, typically E+160-300bps, with LTVs of 55-65% for prime assets and tenors of 5-7 years. In addition to this, we are seeing hotel development finance facilities as low as 250bps over EURIBOR, the lowest in recent years.

Mezzanine and bridge structures are available with E+550–1200bps, LTVs of 65-80% and shorter tenors of 6-24 months.

Private Credit

Both UK and European private credit lenders have been active in the £/€50–150 million range, offering bespoke solutions for refinancing or repositioning assets.

These lenders are increasingly targeting less conventional opportunities, providing financing where traditional banks are unable to underwrite.

Availability of smaller loan facilities (sub-£30 million) remains underserved owing to scale and back-leverage limitations.

Covenants & Terms

Interest coverage ratios generally required at ≥1.25x, with regional assets often closer to 1.35–1.40x.

3. Notable Transactions

QHotels Collection Group (UK, Sterling) £75 million refinancing secured with a syndicate of high-street banks led by Barclays and Santander.

The Social Hub's €80 million refinancing deal for its properties in Florence and Bologna, Italy.

4. Market Outlook – Q4 2025

Interest Rates

UK: Bank of England base rate expected to remain stable at 4%, keeping sterling debt costs above recent times but in line with historic averages and, crucially, predictable.

Europe: EURIBOR rates are expected to remain around 2% with two-year swaps dipping slightly below whilst five-year swaps trade around 2.2%. Eurozone inflation may moderate further from 2.6%, supporting low-cost euro-denominated financing.

Lender Activity

UK banks will continue to focus on prime London and gateway assets.

Eurozone lenders are likely to maintain an active role for cross-border deals, particularly where sponsors seek flexible or floating-rate structures.

Private credit will remain a key alternative for bespoke financing and transitional assets.

Investment Opportunities

Well-performing UK and cross-border assets with low leverage will continue to attract competitive financing.

Selectively priced secondary assets or transitional opportunities may benefit from tailored EURIBOR or private credit structures.

5. Strategic Considerations

Operational Excellence: Maintaining strong hotel performance is critical for both UK and euro-denominated financing, affecting margins, covenants, and refinancing potential.

Diversifying Capital Sources: Sponsors should engage with both UK banks and European lenders, as well as private credit providers, to optimise flexibility, pricing, and tenor options.

Timing & Currency Exposure: For cross-border or EURIBOR-linked debt, monitoring currency risk, real interest costs, and Eurozone inflation trends is essential when planning refinancing or acquisition strategies.

Conclusion

Q3 2025 demonstrates a UK hotel debt market that is stabilising and selective, with encouraging signs of activity. Sterling-denominated facilities remain attractive at a 4% base rate, while euro-denominated refinancing benefits from a 2.06% EURIBOR and lower Eurozone inflation (2.6%).

High-quality assets in London continue to attract bank financing, while private credit and European lenders provide flexible solutions for both prime and transitional assets. The market is well-positioned for measured growth into Q4, offering multiple avenues for well-prepared sponsors.

Please reach out if you would like to discuss any hotel financing requirements.

Tim Barbrook, Head of Debt Advisory

tbarbrook@hvshwe.com

+44 (0) 7742 882 240