Established holiday cottage, chalet and lodge businesses come to market across Scotland every month: four cottages round a steading in Perthshire, a row of chalets above a loch in Wester Ross, a handful of lodges on a croft, nearly always with the owners’ house on the same site. They sell as a business and a home together, and financing them means understanding both how lenders value a trading business and where the owners’ house complicates it. We own and run a west coast hotel, we trade in the same seasonal market these sites do, and this page covers what we have learned arranging finance for them.
A self-catering business with several units, a booking operation, repeat customers and a set of accounts is a trading business, and lenders who know the sector fund it as a commercial mortgage against a going-concern valuation. That valuation is based on the fair maintainable trade the site can produce and the profit it leaves, and it is usually higher than what the buildings would fetch empty. The difference is the value of the business.
The alternative is a bricks-and-mortar valuation: what each unit and the house would sell for as property, ignoring the trade. Lenders fall back to it when the accounts are too thin to support a trading figure, or when the site is small enough to be treated as a holiday let investment rather than a business. It matters which one you get, because on a well-run site the trading valuation can be materially higher, and the loan is a percentage of whichever figure the lender adopts.
The most common problem with these purchases is that the accounts do not show what the site can do. Owners approaching retirement stop taking bookings in the shoulder months, let the website drift, stop replacing the hot tubs, and by the time the site is on the market the last two years’ figures are well below the earlier ones. The seller’s agent will tell you the potential. The lender will read the accounts.
That gap is not fatal, but it has to be handled honestly. Lenders lend against the trading record, not the trading you believe is possible. Where the recent figures have fallen, the case needs three things. First, the earlier years, to show what the site produced when it was run properly. Second, an explanation of the decline that the accounts support: fewer weeks let, a closed unit, a price never raised, an agency dropped. Third, a plan that is specific rather than hopeful: which weeks you will open, what you will charge, which platforms you will list on, and what the first year’s marketing costs. Presented that way, a lender will often fund on a blend of the historic trade and a discounted view of the plan, at a lower loan-to-value than a site with clean figures. Where the gap is large, the honest structure is sometimes a smaller loan now and a refinance at better figures after a full season you have run yourself. What kills applications is presenting projections as if they were history.
Nearly every one of these sites includes a house, and nearly every buyer intends to live in it. That is fine up to a point, and the point is how much of the property the house represents. Where the letting units are clearly the business and the house is the smaller part of the value, the whole purchase is a commercial case. Where the house is most of the value and the units are a sideline, the loan starts to look like a residential mortgage with some letting income attached, which is outside what we arrange.
Lenders handle this differently. Some will lend against the whole site as a trading business provided the residential element stays below their threshold. Some will exclude the house from the security and lend only against the units, which reduces the loan. Occasionally the right structure is two loans. We work this out from the layout and the rough split of value before an application goes anywhere, because it changes which lender we approach.
Every unit on the site needs to be covered by a short-term let licence from the local council, and lenders now expect the licences, or the applications, in the pack. Check three things before you offer: whether the current owners’ licences transfer with the sale or you need fresh applications; how long the council is taking to process them; and whether the site sits in a planning control area, which adds a planning requirement on top. Our Scotland property finance guide covers the licensing regime in more detail. It has become one of the most common causes of late-stage delay on holiday let purchases, and it is entirely avoidable.
Most Scottish self-catering sites trade hard from Easter to October and quietly, or not at all, through the winter. Sector lenders expect that. The pack should show occupancy and average weekly rate by month, the shoulder weeks you intend to open, and the annual figures covering the loan payments with headroom. Where the site is remote, on an island or on a croft, the lender field narrows and the valuation evidence has to be built rather than assumed; our Highlands and Argyll and islands pages cover the postcode question. Croft land, if any part of the site sits on it, needs a lender and a solicitor who handle crofting tenure weekly, and decrofting should start before the application.
A buyer enquires about a chalet business in the north-west Highlands: six timber chalets above a sea loch, an owner’s house, and thirty years of trade under one family. The last two years’ accounts are well down because the owners cut the season to the summer months and stopped advertising. The asking price reflects the good years, not the recent ones. The buyer has a deposit from a business sale, a plan to reopen for ten months and add hot tubs, and no experience of self-catering.
That case is fundable, but not at the asking price and not at a high loan-to-value. The valuation lands between the trading figure the earlier accounts support and the bricks-and-mortar figure the recent ones would justify. A sector lender advances 55 to 60% of that valuation (indicative), the house stays inside the security because the chalets are clearly the business, and the structure allows a refinance at the end of the second season on the buyer’s own figures. The negotiation on price does more for the deal than any amount of packaging.
Adding units, from new lodges to converting the steading, is development finance for conversions and new build rather than a commercial mortgage. Hot tubs, furniture and vehicles go on asset finance. Sites with pitches and pods as well as cottages are covered on our holiday park, campsite and glamping finance page, and the hospitality finance page sets out everything we arrange for the sector.
Sealed bids, missives and lender coverage shape every deal here. Read our guide to property finance in Scotland.
An established site with several units, a booking operation and trading accounts is a commercial mortgage on a trading business, valued as a going concern. A single cottage let through an agency is closer to a holiday let buy-to-let, sized on projected rental income. Many sites sit between the two, and which route we take depends on the number of units, the accounts and whether an owner's house is included.
Yes, if the price reflects the real trading position and your plan to rebuild it is credible. Lenders will not lend against projections as if they were history, so expect a lower loan-to-value, more deposit and possibly a structure that refinances at better figures after a proven season.
It can. Where the house is a large part of the overall value and you will live in it, the loan may fall outside business and investment lending. Where the letting units are clearly the business and the house is the smaller part, it is a commercial case. Send us the layout and rough values of each part before you offer.
Yes, each unit needs to be covered by a licence from the council, and lenders expect the licences, or the applications, in the pack. Check whether the current licences transfer with the sale and whether the site sits in a planning control area.
Typically 25 to 40% of the price for an established trading site (indicative). Sites with tired accounts, a large owner's house or a remote postcode sit towards the top of that range.
Found the site? Send us the particulars, the asking price, how many units, whether there is an owner's house, and the last accounts you've seen. One working day to an honest view on whether it funds and what the valuation is likely to say.