Airbnb & Mortgages: Everything You Need to Know

Airbnb: A Genuinely Disruptive Business

Airbnb has been a genuinely disruptive business, bringing a completely new business model to the market which has been so successful other large industries which have been affected can no longer ignore the changes they have brought to the short-term rental market.

Its introduction has precipitated a huge increase in the short-term rental market. Over the last year, a staggering 11.1 million people in the UK have used Airbnb to travel to other parts of the UK, or abroad, generating £3.5 billion in economic activity for the UK.

So if you are seriously considering using Airbnb as a highly profitable source of income from a rental property then there are a number of mortgage-related questions which need to be considered before you take the plunge.

Mortgage lenders are having to adapt to the Airbnb business model.

Traditionally, most mortgage lenders would not entertain an application for a mortgage for any property being used for short term rentals. However, due to the rapid expansion of the market, they have had to adapt.

In 2018, Airbnb reported that there were 223,200 active listings in the UK alone, with 58% offering an entire home, and 41% renting out a spare room. Interestingly, London is home to nearly a fifth of these listings.

In May 2019, AirDNA reported that there were 44,705 active rentals in the capital, a 26% rise from the year before. To put this into context, Manchester contributed 2,315 property listings, with Liverpool offering 1,598 Airbnb homes.

Although Airbnb will never offer the same security of income as a traditional long-term rental the significantly higher returns available make it a very profitable exercise even if it is a much less ‘passive income’.

In Newcastle, the average daily rate stands at £88 and an average occupancy of 60%, which translates into an extremely healthy 30-day monthly revenue of £1,584, far higher than the equivalent income most long-term rentals will generate. You can understand therefore why a 2017 RLA report suggested that nearly 7% of landlords in the UK were actively creating plans to make their property available on Airbnb.
Taking potentially 130,000 rental properties off the market, the decision to move onto Airbnb was based on not only the financial benefit but the incoming changes to mortgage interest relief.

Now the mortgage interest relief changes are in effect, we expect this percentage to continue growing. And with more property owners and landlords shifting to this online short-let platform, we expect more mortgage lenders to also turn to Airbnb.

So, do banks offer a specific Airbnb buy-to-let mortgage?

While there are still some lenders in the UK market who completely prohibit the use of properties for Airbnb landlords there are now a number of specialist holiday-let mortgage options available.

If the primary focus of your rentals is Airbnb and other short-term letting platforms, then this type of mortgage may be best for you. However, remember to check that Airbnb hosting is permitted on any freehold agreement which may be present and also contact the local council to make sure it is OK in your area. If you’d like some assistance with this, you can always contact the Bricks & Mortar team who will be more than happy to help.

You can use this type of holiday let mortgage for:

• Accommodating employees who travel for work. Last year, Airbnb reported that nearly 700,000 companies have had employees book with Airbnb for work so it is a major player.
• Homeowners seeking accommodation while building work is being conducted on their home, or while they’re looking for a new home to move into.
• People wanting to fully immerse themselves or explore an area before moving permanently.
• Tourists and those on holiday.

So, who will give me an Airbnb or holiday let mortgage?

Below is a list of the bigger mortgage lenders who offer holiday let mortgages:

Principality Building Society

Personal name on house title only. Will lend on a purchase and re-mortgage of a property. 75% LTV. Standard interest and arrangement fees. AST (assured short-term tenancy) not required. Lends based on projected Airbnb income; minimum income of £20,000 needed. Only one Airbnb property allowed.

Paragon

Personal name on house title only. Limited company (SPV). Will lend on a purchase and re-mortgage on a property. 70% LTV. Higher interest rates and lenders fee. No need for an AST. Lends based on projected standard assured tenancy agreement or proven two years holiday rental income. A minimum of £25,000 in personal income is required.

Castle Trust

Castle Trust offer bespoke mortgages, so they are most suited to those with less traditional circumstances, such as unconventional income, or those who need to refinance existing borrowing or raise capital. They do tend to come with higher fees.

Tipton & Coseley

This Midlands based lender has two buy-to-let mortgage products designed for Airbnb and short-lets, allowing homeowners to let out all or part of their properties on a short-term “holiday let” basis: 2-year discount mortgage at 2.49% interest rate, rising to the lender’s SVR after 2 years; 5-year mortgage at an initial rate of 2.99%, rising to the SVR at the end of the five-year term. Both mortgages offer 75% LTV.

Metro Bank

Metro Bank actually allows residential mortgage customers to rent out their homes on Airbnb or similar sites for up to 90 days a year without seeking prior approval. More info here.

If you would like some financial advice on which provider would be best suited to your personal situation, get in touch with the friendly consultancy team at Bricks & Mortar on 0191 230 5577 or hello@bricksandmortargroup.co.uk and we can help find the best solution for you.

Can I use a residential mortgage for Airbnb?

In some cases, it’s possible but not all.

For example, if you have a spare room, you’d like to rent out from time to time, or while you travel, this wouldn’t be defined as a buy-to-let situation. Nationwide are one of the more flexible lenders in this regard, if you live at the property and wish to let out a room or two they will not have a problem, they also have no limit on the number of days you can do this. Also, Metro Bank allows residential mortgage customers to rent out their home for up to 90 days a year without approval.

However, we would still advise that you tell your mortgage lender before adding your home to Airbnb. After all, if your mortgage lender finds out that you are renting rooms in your home, you could be in breach of your mortgage terms, and could even get your property repossessed.

The advantages of Airbnb for landlords:

• Usually higher rental yields.
• All mortgage interest can be offset against tax as opposed to the recent changes in traditional buy to let taxation.

The downsides of Airbnb for landlords:

• Landlords who want to let their property via Airbnb MUST ensure that there are no restrictions on their mortgage. In most cases, you will need a specific Airbnb mortgage and should consult us at Bricks & Mortar for some impartial advice
• Landlords should be aware if there are local planning restrictions for short-term let properties (i.e. the 90-day restriction which is currently in place in London only)

If Airbnb doesn’t work out can I go back to traditional letting?

Yes. If you’ve decided to commit to Airbnb and have set up a holiday-let mortgage, some lenders will allow you to switch (or switch back) to a regular AST if you change your mind.

If you want to find out more about Airbnbing your property and how Bricks & Mortar Host can help, give us a call today on 0191 230 5577.