Pub and Restaurant Mortgages: How to Finance a Hospitality Business
Buying a pub, bar, or restaurant is not like buying a normal commercial property, and financing one works differently too. A hospitality business is valued on how much it trades, not just on the bricks and mortar, which changes how much you can borrow, the deposit you need, and which lenders will even look at the deal.
This guide explains how pub and restaurant mortgages work in the UK: the freehold versus leasehold decision and the brewery tie that catches people out, how lenders value a trading business, what deposit and experience you need, and how to buy a venue that has no recent accounts. It is written from the perspective of someone who has arranged finance across the hospitality sector for over two decades.
A pub or restaurant mortgage is a specialist form of commercial mortgage. If you want to understand how trading premises are valued, our guide on commercial mortgage valuations explains the profits method that applies here.
- Pubs and restaurants are valued on their trading profit, not just the building, using the profits method.
- Freehold gives you full control and is easier to finance; leasehold is cheaper to enter, but the lease and any brewery tie matter enormously.
- Expect a deposit of 30% to 40% or more, because lenders see hospitality as higher risk.
- Lenders strongly prefer applicants with hospitality experience, though a strong plan can offset a lack of it.
- You can buy a venue with no accounts, such as a closed pub, but it needs a credible plan and usually a larger deposit.
Why a Pub Is Valued on Its Trade, Not Its Bricks
This is the single most important thing to understand, and the point most guides skim over. When a surveyor values a pub, restaurant, or hotel for a lender, they don’t value it like an empty building. They value it on the maintainable trading income, meaning how much profit a reasonably competent operator could make from it. This is called the profits method.
The practical effect is significant. Two pubs in identical buildings can have very different valuations if one trades well and the other poorly, because the value is in the business, not just the property. It also means the trading accounts are central to your application. A venue with strong, provable trade supports a larger loan; a struggling or closed one supports less, regardless of what the building alone might be worth.
Because the value includes the business’s goodwill as well as the property, fixtures, and fittings, lenders typically advance a lower percentage than on a standard commercial unit. Experienced applicants can expect to borrow around 60% to 70% of the going-concern value, which is why the deposit is higher than on an ordinary commercial mortgage.
Freehold vs Leasehold: The First Big Decision
When you buy a pub or restaurant, you choose between two very different options, and lenders treat them differently.
| Freehold | Leasehold | |
|---|---|---|
| What you own | The business and the property outright | The business and the right to occupy for the lease term |
| Cost to enter | Higher upfront | Lower upfront |
| Control | Full control of the premises | Subject to the landlord and lease terms |
| Lender view | Preferred; the property is security | Financeable, but the lease is scrutinised |
| Long-term value | Builds an asset you own | No property asset, but goodwill can be sold |
Freehold is generally easier to finance, because the property itself provides the lender with security. Leasehold can still be financed, but the lender will closely assess the lease length. As a rule, they want the lease to run several years beyond the end of the mortgage term, so a short lease can limit or block borrowing.
The Brewery Tie: The Trap on Leasehold Pubs
This detail catches out first-time pub buyers, and most finance guides ignore it. Many leasehold pubs are tied, meaning you are contractually obliged to buy your beer, and sometimes other drinks, from a specific brewery or pub company, often at higher prices than the open market. A free-of-tie pub lets you buy stock from anyone.
Why the Tie Matters to Your Finance
- A tie directly affects your margins and profit, which is what the lender values the business on.
- A tied pub with thin margins may support a smaller loan than a free-of-tie pub with the same turnover.
- Always establish whether a leasehold pub is tied or free-of-tie before you offer, and factor it into your projections.
- A freehold pub, or a free house, has no tie, which is one reason lenders and buyers often prefer them.
Deposit, Experience and What Lenders Want
The Deposit
Hospitality is seen as higher risk than most commercial property, because a pub or restaurant depends heavily on how well it is run. As a result, deposits are larger. Expect to put down 30% to 40% of the value, and sometimes more for a leasehold or a venue with weaker trade. A larger deposit widens your lender choice and improves your rate.
Experience
Lenders strongly prefer applicants who have run a hospitality business before, because experience reduces the risk that the trade will fall away under new ownership. If you are a first-time operator, you are not excluded, but you will need a stronger business plan, and often a larger deposit or a strong management team, to reassure the lender.
Trading Accounts and a Business Plan
For a trading venue, lenders want to see two to three years of accounts showing the business’s profit. Alongside that, a credible business plan covering cash flow, margins, staffing and how you will maintain or grow the trade is essential. The lender assesses affordability against this, so it needs to be realistic and well presented.
Buying a Pub or Restaurant With No Accounts
What if the venue is closed, brand new, or the seller will not share accounts? This is more common than you might think; closed pubs are frequently bought and reopened, and it is a scenario almost no finance guide addresses. It is harder, but far from impossible.
Without trading accounts, the lender cannot value the business on its current profit, so it falls back on other measures: the vacant possession value of the property, comparable trading figures for similar venues, and the strength of your business plan and projections. Expect a lower loan-to-value and a larger deposit, because the lender is taking a more cautious view of your ability to make the venue trade.
This is often where a combination of finance works best. Many buyers use a bridging loan to buy and refurbish a closed venue quickly, get it trading, and then refinance onto a commercial mortgage once it has a track record. Getting the venue trading unlocks better long-term finance.
An Expert View from Faisal Rashid
The mistake I see most often with pubs and restaurants is buyers treating them like buying a shop or an office. They are not. You are buying a business, and the finance follows the business, not just the building.
My advice after twenty-five years is to get the trading accounts and your business plan absolutely straight before you approach anyone, and on a leasehold, know exactly what the tie is. Buyers who struggle are the ones who fall for the building and forget the lender is lending against the trade. Get the trade right, and the finance follows.
Faisal Rashid, Founder of Westminster Finance. Former banker, MP and Mayor, with over 25 years in finance.
A Manchester Example
The situation. An experienced operator wanted to buy a well-trading freehold pub in south Manchester, on sale as a going concern for £650,000, including the business’s goodwill.
The finance. The lender valued the pub on the profits method, based on three years of solid trading accounts. With a 35% deposit of £227,500, the operator borrowed £422,500, around 65% of the going-concern value. The strong accounts and the buyer’s hospitality experience made it a straightforward case.
The outcome. The mortgage was approved at a competitive rate for the sector. Because the pub was freehold and free of any tie, the operator had full control of margins from day one, supporting the trade the lender valued. The deal worked because the business, not just the building, was strong and well evidenced.
Finance for Different Hospitality Venues
The same principles apply across the sector, with small differences by venue type.
- Pubs and bars. Valued on trade, with the freehold-versus-leasehold and tie considerations above. Freehold free houses are the most straightforward to finance.
- Restaurants. Also valued on trade. Lenders look closely at the concept, location and accounts, as restaurants can be more volatile than established pubs.
- Hotels and guest houses. Valued on the profits method too, with room occupancy and revenue central to the assessment. Deposits can be higher again.
- Cafes and takeaways. Often smaller loans, still assessed on trade and location, with the lease terms important for leasehold units.
Why a Specialist Broker Matters for Hospitality
Not every commercial lender will finance a pub or restaurant, and those that do have very specific criteria on trade, experience, leases and ties. Sending a hospitality case to the wrong lender is a common way to waste weeks and a valuation fee. As a commercial mortgage broker in Manchester, we know which lenders genuinely support hospitality, how to present the trading accounts, and how to structure a case, whether it is a strong freehold going concern or a closed venue you plan to revive across the North West.
Frequently Asked Questions
Can I get a mortgage to buy a pub or restaurant?
Yes. A pub and restaurant mortgage is a specialist commercial mortgage secured against the property and business. Lenders value the venue on its trading profit using the profits method and typically advance around 60% to 70% of the going-concern value for experienced applicants, so expect a deposit of 30% to 40% or more.
How much deposit do I need to buy a pub?
Typically 30% to 40% of the value, and sometimes more. Hospitality is seen as higher risk than standard commercial property, because the value depends heavily on how well the business trades, so lenders require a larger deposit. A bigger deposit widens your lender options and improves your rate.
How is a pub or restaurant valued for a mortgage?
On the profits method, meaning the surveyor values it on the maintainable trading income a reasonably competent operator could achieve, not just the building. This is why two identical buildings can have very different valuations, and why strong, provable trading accounts are central to the application.
What is the difference between a freehold and leasehold pub?
With a freehold pub, you own the business and the property outright, giving you full control and building an asset. With a leasehold, you own the business and the right to occupy for the lease term, which is cheaper to enter but subject to the landlord and lease terms. Freehold is generally easier to finance because the property provides security.
What is a tied pub?
A tied pub is a leasehold pub where you are contractually obliged to buy your beer, and sometimes other drinks, from a specific brewery or pub company, often at above-market prices. A free-of-tie pub lets you buy stock from anywhere. The tie affects your margins and profit, which is exactly what the lender values the business on, so it matters to your finance.
Can I buy a pub with no accounts?
Yes, though it is harder. If the venue is closed or brand new, the lender cannot value it on current trade, so it relies on the vacant possession value of the property, comparable trading figures and your business plan. Expect a lower loan-to-value and a larger deposit. Many buyers use a bridging loan to buy and reopen a closed venue, then refinance once it is trading.
Do I need hospitality experience to get a pub mortgage?
Lenders strongly prefer it, because experience reduces the risk that the trade falls away under new ownership. First-time operators are not excluded, but you will usually need a stronger business plan, and often a larger deposit or an experienced management team, to reassure the lender.
Is it easier to finance a pub or a restaurant?
It depends on the venue, its trade, and your experience, but established freehold pubs with a solid trading history are often the most straightforward because the property provides security and the trade is provable. Restaurants can be more volatile, so lenders look closely at the concept, location, and accounts.
How long is a pub or restaurant mortgage?
Commercial mortgages for hospitality typically run between 5 and 25 years, similar to other commercial mortgages. The term available may be shorter on a leasehold, because lenders usually want the lease to extend several years beyond the end of the mortgage term.
Can I use a bridging loan to buy a pub?
Yes, and it is common, especially for closed or run-down venues, or where you need to complete quickly. A bridging loan lets you buy and refurbish the venue fast, get it trading, and then refinance onto a longer-term commercial mortgage once it has a track record that supports better terms.
