Q1 2026 Hotel Debt Market Update

As we enter 2026, the hotel debt markets in the UK and Europe are showing signs of cautious stability. Lenders are keen on high-quality assets, experienced sponsors, and well-defined strategies. Although the underwriting process remains cautious, both UK and European lenders are actively investing in structured opportunities, with a focus on refinancing transactions.
Stability in interest rates in both the British pound and euro markets is providing clarity for both borrowers and lenders. Traditional banks are being selective but involved, while private credit is offering flexibility for more intricate or transitional loans.
In terms of the macroeconomic environment, the UK’s economic growth remains slow, with GDP growing by only 0.1% quarter-on-quarter. Inflation has decreased more quickly than expected, standing at 3.2% as of November 2025, which is aiding in creating more predictable operating and financing conditions. The Bank of England base rate is currently at 3.75%, the lowest since December 2022, ensuring some certainty around servicing costs for debt denominated in sterling.
Across the Eurozone, the Euribor remains steady in Q1 2026, while inflation has eased to 2% year-on-year. This stability has improved the transparency of real borrowing costs, leading to continued interest from European lenders in hotel assets in core markets such as France, Germany, Spain, and the Netherlands.
Hotel performance in Europe has seen positive RevPAR growth, averaging 3% in 2025. This growth, although slower than the post-pandemic surge in 2024, shows the resilience of leisure demand despite ongoing geopolitical challenges. Southern European countries like Spain, Greece, and Portugal have outperformed the average, while the Nordics and Eastern Europe have also fared well. On the other hand, Germany continues to face operational hurdles. A limited growth in supply across Europe in 2024 has helped to maintain stable performance despite these challenges.
Turning to the lending landscape, commercial bank lenders in the UK are active but disciplined, offering senior loans at loan-to-value ratios of 55-65% for prime assets. Margins typically range from L+180-375bps with tenors of 5-7 years. European banks are also playing a significant role in hotel financing, offering senior euro-denominated facilities at 55-65% LTV with margins of E+165-350bps and tenors of 5-7 years for stabilised assets.
Private credit remains a crucial part of the market, especially in refinancing situations involving complexity, repositioning, or timing constraints. Pricing for private credit remains higher than traditional bank debt, but the flexibility it offers justifies its use in the right circumstances.
Looking ahead in 2026, refinancing is expected to dominate the hotel debt volumes, with acquisition and development financing being more selective. Interest rate stability in both sterling and euro markets is supporting lender engagement, although underwriting discipline is projected to remain firm. Assets with strong performance, conservative leverage, and clear business plans are likely to attract the most competitive terms, encouraging sponsors to engage with lenders early.
In conclusion, the hotel debt market in 2026 is stable yet discerning. Lenders in the UK and Europe are backing quality hotel assets with sound structures and leverage. The market presents refinancing options and selective opportunities for well-prepared sponsors in the upcoming year.