Buying a guest house in Scotland is usually two decisions in one: a business to run and a home to live in. That is exactly what makes the finance confusing, because the lenders who fund trading businesses and the lenders who fund homes are different, and a guest house sits on the boundary. We own and run a west coast hotel with rooms, a bar and a restaurant, we live in the trade, and most of the guest house enquiries we take are from people about to make the same move we did. This page covers where the boundary falls, what lenders look at, and how to get to a yes.
A guest house where you live on site can still be a commercial mortgage. The test lenders apply is a simple one: is this a trading business with letting rooms, where the owners happen to live in, or a home with a couple of rooms let out? A six-bedroom guest house with a private flat on the top floor, a breakfast room and a short-term let licence is a trading business. A four-bedroom house where one room is let in summer is a home, and finance for it is residential lending, which we do not arrange.
The line that matters is how much of the property is your home. Where you or your family occupy 40% or more of the building as a residence, the loan falls outside business and investment lending and you need a residential mortgage broker instead. Below that, with a genuine trade, it is a commercial mortgage and we can help. Room count, floor area and the layout of the owners’ accommodation decide it, and it is worth working out before you offer. We ask for the layout in the first conversation so nobody spends six weeks on an application that was never ours to arrange.
A trading guest house sells as a going concern: the building, the fixtures, the bookings, the reviews and the trade, at one price. Lenders value it the same way. The going-concern valuation is based on fair maintainable trade and profit, and it is normally higher than what the empty building would fetch, because the business is worth something. The gap between the two figures only exists on paper if the accounts support it. If the trade is thin, the valuer falls back towards the bricks-and-mortar figure and the loan shrinks with it.
That has a practical consequence: the accounts are the deal. Ask the selling agent for two to three years of accounts and the current year’s management figures before you view twice. How they read decides almost everything that follows, including whether the asking price is a going-concern price or a house price with a business attached.
Lenders lend against sustainable earnings, not turnover. They take the net profit and add back the things that will not apply to you or are not real cash costs: the current owners’ drawings, one-off repairs, depreciation, a family member on the payroll who is leaving with the sale. The result is adjusted net profit, and it is stressed against an interest rate higher than today’s to make sure the loan still services with headroom. A guest house turning over £180,000 with an adjusted net profit of £70,000 supports a very different loan from one turning over the same with £35,000 left, and the second one is more common than sellers admit.
Three years is better than two because it shows a trend. Rising trade with a clear reason funds well. Falling trade has to be explained, and “the owners were winding down before selling” is a legitimate explanation that lenders hear often, provided the price reflects it and your plan to rebuild is credible. Management figures for the current year matter because Scottish guest houses are bought in autumn and winter on the back of a summer that is already in the till.
A Highland or west coast guest house makes most of its money between Easter and October, and many close for part of the winter. Lenders who know the sector expect this. Lenders who do not see eight thin months and read risk. The difference is which lender you apply to and how the pack is built. Present a full trading year, not a flattering half; show occupancy and average rate by month; explain the winter closure as a decision about staffing and heating costs rather than a failure to trade; and show that the summer covers the annual loan payments with room to spare. Presented that way, seasonality becomes a pattern a sector lender recognises. The same applies to costs: utilities, freight and staffing run higher in rural Scotland, and they need explaining rather than hiding.
Guest houses and B&Bs fall within the Scottish short-term let licensing scheme, run by each council. Lenders now treat the licence, or a credible path to one, as a condition of the loan, and it has become one of the most common causes of late-stage delay. Check the position with the council before you offer: whether the current licence transfers or a new application is needed, how long the council is taking, and whether the property sits in a planning control area that adds a planning requirement on top. Have the answer ready for the application pack.
A couple leaving salaried jobs offer on a seven-bedroom guest house in the Highlands with owners’ accommodation in a separate wing. The current owners are retiring, the accounts show three good summers and a slow decline in the last one as they eased off, and the guest house closes from November to February. The buyers have a deposit from a house sale and no hospitality experience, but one of them has run a team and a budget for years.
That case funds. The lender is a sector specialist rather than a high street bank, the loan sits at 60 to 65% of the going-concern valuation (indicative), the living arrangements are well inside the commercial line, and the application leans on a plan: who does breakfast, how the rooms are priced, and what the first winter is for. The work is in the accounts presentation and the lender choice, not the form-filling.
Refurbishing rooms or adding en-suites while trading is fundable through staged facilities, and the kit, from commercial laundry to a new breakfast kitchen, goes on asset finance rather than draining the working capital you just protected. If you are looking at a larger property, our guide to buying a hotel in Scotland covers the same ground for licensed hotels, and the hospitality finance page sets out everything we arrange for the sector. Rough out the repayments on the commercial mortgage calculator before you offer.
Sealed bids, missives and lender coverage shape every deal here. Read our guide to property finance in Scotland.
Often, yes. When the letting rooms are the business and the owners' accommodation is the smaller part of the building, lenders treat it as a trading business purchase and fund it as a commercial mortgage. Where your home makes up 40% or more of the property, it falls outside what we arrange and you need a residential mortgage broker. Tell us the room count and the layout at the start and we will tell you which side of the line it sits.
Typically 25 to 40% of the purchase price (indicative). Strong, well-presented accounts, a good location and relevant experience push you towards the lower end; thin or messy accounts, remote postcodes and a first purchase push towards the upper end. Lenders will not fund LBTT, fees or working capital, so those come from cash on top.
Two to three years of the current owners' accounts plus the current year's management figures. Lenders rebuild them to find sustainable earnings after add-backs, and that figure, not turnover, decides how much they will lend.
No. Winter closure is normal for Scottish guest houses and lenders who know the sector expect it. Present a full trading year, explain the closure as a decision rather than a shortfall, and show how the summer covers the annual loan payments with headroom.
In most cases, yes. Guest houses and B&Bs fall within the Scottish short-term let licensing scheme, and lenders now expect the licence, or a credible route to one, in the application pack. Check the position with the council before you offer, not after.
Yes, every year. Expect a lower loan-to-value, more questions and real weight placed on your wider work history and your plan for breakfast, housekeeping and the winter. A candid plan beats a glossy one.
Found the guest house? Send us the particulars, the asking price, the room count and the last accounts you've seen. Within one working day we'll tell you honestly whether it funds, at roughly what cost, and whether the living arrangements keep it a commercial case.