Short-term lets, Airbnb & mortgages – what you need to know

Over the last decade, Airbnb has grown to become one of the most popular travel websites in the world. Recent statistics revealed that Airbnb has approximately 150 million users covering more than 65,000 cities, and guests can book 1.9 million listings at any given time.

Many landlords have seen the potential benefits of letting homes to Airbnb customers, but in the absence of dedicated ‘Airbnb mortgages’, anyone with a mortgage could be breaching the terms and conditions of their loan.

Considering that none of the UK’s six biggest lenders permit short-term lets on their Buy to Let products, there is a huge potential market for mortgage lending that caters for Airbnb-style lets. Keep reading to find out more.

Lenders should ‘move with the times’ where Airbnb is concerned

A leading challenger bank has called on lenders to ‘move with the times’ and offer more mortgages that permit short-term lets.

Metro Bank is one of the few lenders that allow landlords to let out properties on a short-term basis, from a few days to weeks at a time. Most lenders, including giants such as Barclays, HSBC, Santander and Nationwide, don’t permit an Airbnb-style let, despite a boom in this market.

Mortgage expert David Hollingworth says: “Airbnb can cover a variety of uses ranging from an owner-occupier looking to let a single room or their entire home on an ad hoc basis, through to an investment property. None of these situations really tick the boxes for the bigger lenders.”

Where to find a mortgage if you plan to let a property through Airbnb

The lack of options among major lenders means that landlords often have to turn to smaller, niche lenders to find suitable Airbnb mortgages.

Metro Bank is currently the biggest name in this market, allowing residential homeowners to let out their property for up to 90 days as a holiday let, but not on its Buy to Let range.

In terms of bigger lenders, Lloyds Banking Group allows short-term lets only on a customer’s second home, and for a maximum of four months a year.

Nationwide offers it on second homes for a maximum of 18 weeks a year, and only on a borrower’s primary home if they let out individual rooms, not the whole property. The borrower must be present in the home during the letting period.

Metro Bank Chief Commercial Officer Paul Riseborough wants banks to do more. He says: “The sharing economy is a fact of life. Banks face a choice: to support customers in the choices they make or risk losing them.

“It’s about responding to what customers tell us they want – and that’s flexibility and choice in how they use their homes. Now the banking industry needs to move with the times and react to that.”

Experts say that it is difficult to obtain clear data on which lenders permit this type of let as it is a relatively new market.

In August, Scottish Building Society launched a mortgage that allows holiday lets. Other lenders that do the same include Bath, Cumberland, Furness, Harpenden, Leeds, and Tipton & Coseley building societies.

Scottish Building Society Head of Business Development and Sales Strategy, Paul Alexander, says: “We have seen massive growth in the number of properties let as holiday accommodation through sites such as Airbnb.”

The costs of this type of mortgage tend to be higher than for traditional mortgages, mainly to represent the additional risks of this type of lending.

However, there can be tax advantages to a holiday let over a Buy to Let. And, landlords can charge far more per night than the daily equivalent on a standard rental, which means far greater income if the landlord can prevent many void periods.

Yet Arla Propertymark Chief Executive David Cox warns: “When spreading it over a year for short-term lets and a long-term tenancy, income levels are probably going to be broadly similar. However, upkeep and maintenance costs are likely to be higher on short-term lets as people staying at a property for a few nights are likely to take less care of it than a tenant would.”

Why are lenders so reluctant to accept Airbnb-style lets?

There are several reasons why lenders are reluctant to agree mortgages where a landlord intends to let the property on a short-term basis:

  • Many people have access to the property, creating a far greater risk of damage
  • There is a greater possibility of large void periods
  • The property is being let to lots of different people
  • Short-term lets can attract difficult tenants, such as stag or hen parties

The main reason that lenders do not permit Airbnb lets on a Buy to Let mortgage is that banks and building societies often require an assured shorthold tenancy in place for a minimum of six months, which cannot be made up of many short-term lets.

Landlords breaching mortgage conditions by allowing Airbnb

Considering how few lenders permit short-term lets, it is likely that many landlords are either unaware of any restrictions or are deliberately ignoring their mortgage terms and conditions when agreeing Airbnb lets.

Lenders warn that there are big risks for homeowners who get it wrong. A Barclays spokesman says: “A customer will be in breach of their contract where they let out the property without our explicit consent.” These risks could include:

  • An increase to the interest rate being charged
  • Damage to a credit file
  • Being added to a fraud prevention list
  • A lender seeking immediate repayment of the mortgage

Holiday-let landlords also need to ensure they have permission from their building management company and/or freeholder if they live in a block of flats.

Landlords need specialist insurance as well as a specialist mortgage

If you’re planning to let a property through Airbnb, you won’t just need to find a mortgage that permits this. You’ll also need to find specialist home insurance that permits short-term lets.

Most standard home insurance policies won’t cover this type of arrangement, and this could leave you out of pocket if you need to make a claim

Short-term letting market set to grow in the coming years

As tax changes and other restrictions on the standard Buy to Let market continue to bite, it’s anticipated that landlords will continue to look for new ways to make property more profitable. Airbnb lets are one such option.

However, there are threats to the growth of holiday lettings. In London, for example, landlords can let out their property for only a maximum of 90 days a year, although critics say the limit is difficult to enforce.

Other cities have even harsher restrictions. In New York, it is illegal in most buildings for an apartment to be rented out for less than 30 days unless the homeowner or permanent tenant resides there at the same time, while a 2016 law in Berlin banned most short-term rentals.

Many critics of Airbnb-style lets across the world point to the negative impact of short-term tenants. Many don’t always look after properties with the same level of care as standard tenants, and this can have an effect on blocks of flats and the local area. Another concern is that holiday lets drive up rental prices for permanent tenants.

With changes to UK laws failing to dampen the short-term letting market, and with modern society creating a fertile ground for the sharing economy, the number of holiday lettings in this country is rising. This will, in turn, need lenders to step up to the plate and offer lending that supports this type of tenancy.

Get in touch

Looking for a residential or Airbnb mortgages? Thinking about letting on a short-term basis? We can help. Email or call (0207) 808 4120 to find out more.