Ever since the introduction of Airbnb, the short-term rental market has exploded. 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.
We’ve already explained how much you stand to make as an Airbnb host in this article, what you need to consider before Airbnbing your home, as well as how our short-term management service, Portico Host, can help.
But if you’re seriously considering using Airbnb as a tool to supplement or provide income, you probably have some mortgage-related questions. Let’s see if we can answer them for you here.
Mortgage lenders have traditionally opposed Airbnb mortgages, but now they’re having to adapt
Until recently, you’d have been hard-pressed to find a traditional mortgage lender prepared to fund an Airbnb rental. However, the rise of Airbnb has forced lenders 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.
And while Airbnb will never replace the consistent income and security that comes with long-term lets, it can offer much higher returns. In London, the average daily rate stands at £191, which translates into an extremely healthy 30-day monthly revenue of £3,495 on the average occupancy rate (61%)*.
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.
Can I get a specific Airbnb buy-to-let mortgage?
In short, yes. Though there are still some lenders in the UK market who completely prohibit Airbnb hosts, (including Barclays and HSBC), a number of special holiday-let mortgages have been introduced in recent years to handle Airbnb and other short-term letting platforms.
If you will be renting out your property or a spare room on Airbnb full-time, (this isn’t possible in London due to the 90-day a year restriction), a holiday let mortgage may be your best bet. Just make sure to check that Airbnb hosting is permitted by your freehold agreement (if applicable) and the local council first.
You can use this type of holiday let mortgage for:
Which lenders are currently offering Airbnb or holiday let mortgages?
There are a range of different lenders available to you based on your requirments, we’ve listed a few examples below:
Principality Building Society
Personal name on house title only. Will lend on a purchase and remortgage 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.
Personal name on house title only. Limited company (SPV). Will lend on a purchase and remortgage 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 offer unique lending solutions, 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. Higher fees reflect this flexibility.
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 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.
Can an Airbnb property be financed with a buy-to-let mortgage?
All mortgage products are unique really, so unfortunately there’s not one answer to this question. The best thing to do would be to contact your lender who can fully review your circumstances and what options are available to you. In most cases, an existing residential or buy-to-let lender would not be comfortable with the property being rented out through Airbnb or for the tenants to be on anything but an AST.
Do I have to have a buy-to-let mortgage for Airbnb - or can it be residential?
Not necessarily - so yes, in some cases, you can Airbnb on a residential mortgage.
For example, say 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. In terms of lenders, Nationwide are flexible in the case that you want to purchase or remortgage a residential property to live where you want to let out a room or two to supplement your income, and they don’t have a limit on the number of days in the year you can rent out a given room either. And as we mentioned earlier, Metro Bank also allow residential mortgage customers to rent out their homes on Airbnb or similar sites for up to 90 days a year without seeking prior approval.
The advantages of Airbnb for landlords:
- Higher rental yields (typically)
- Outside of the tax rules because Airbnb is run as a business rather than a buy-to-let. In other words, all mortgage interest can be offset
The restrictions of Airbnb for landlords:
- It’s not necessarily a restriction, but landlords who want to let their property via Airbnb MUST with their lender that there are no restrictions on their mortgage.
- 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)
Can I switch back if Airbnb doesn’t go well?
Yes. If you’ve decided to go full steam ahead with Airbnb and 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. Just make sure this is something you discuss with your lender when deciding on the best mortgage option.
If you want to find out more about Airbnbing your property and how Portico Host can help, give us a call today on 0207 099 4000. Or, if you’d like to discuss Airbnb mortgage options, or residential or buy-to-let options.
Your home may be repossessed if you do not keep up repayments on your mortgage.
*AirDNA data, May 2019 https://www.airdna.co/
**Loan to value