Since launching in 2008, Airbnb (Air Bed and Breakfast) has grown into a multi billion dollar worldwide holiday accommodation business. Homeowners can rent out a room, or their entire property, to paying guests who have booked via the Airbnb website – airbnb.co.uk.
The Residential Landlords Association revealed that a third of landlords are turning to short term lets as their margins are reduced by changes to tax relief on mortgage interest.
While Airbnb can provide a huge amount of exposure and drive bookings towards a rental business there is often confusion among the hosts about whether a buy to let mortgage permits this type of letting.
Here we answer some of the more important questions concerning Airbnb and mortgages.
What type of mortgage is best for Airbnb?
Airbnb involves letting out your property for short periods only, no-one is allowed to live there permanently. The type of mortgage therefore needs to match how the property is to be used and vice versa. There’s, no specific ‘Airbnb mortgage’, lenders normally base their decisions on how the property will be used.
There are broadly three options:
Residential mortgage
It is quite rare but some lenders will allow a small degree of letting when it concerns your own home. So renting out a room or two every now and then should be fine. However, you still need to check.
Second home mortgage
A second home mortgage or holiday home mortgage is used to finance a UK property that is mainly being used as a holiday home but could also be let out occasionally. Perhaps your friends and family can enjoy it, together with a month or two of holiday lets to contribute towards the running cost. As this is a second home already you should find most lenders amenable but the level of letting must be incidental.
Holiday let mortgage
This is the only mortgage type where you can let your fully furnished property to guests, including Airbnb, 365 days a year. The lenders that provide holiday let mortgages expect the property to be used for short term rentals, by different guests, across the year. You can also use the property yourself. Airbnb has created a much larger holiday letting market in the UK and many buy to let landlords are now switching to serviced accommodation and short term lets as the returns are much higher.
What does fully furnished mean?
What about buy let mortgages?
Buy to let mortgage eligibility is based on the projected AST income from a full year of letting a property, whereas holiday lettings don’t work in the same way. So when you do apply for a buy to let mortgage, for a holiday let property, the lender will use AST income and the mortgage amount offered will be considerably lower than expected. Buy to let lenders expect tenancies to be controlled via an AST, something which is not required for short term breaks. With these points in mind, buy to let mortgages are not suitable where the property is to be used for short term airbnb holiday lets.
Can I do Airbnb with my current mortgage?
That very much depends on the type of mortgage you have and the lender’s attitude to Airbnb.
If you run a property as an Airbnb you actually have ‘short term let accommodation’, where the marketing and guests are via the Airbnb platform. Some owners will use another site or even social media to generate the bookings. So the most important aspect is that you are running a short term let business, not that you advertise on Airbnb.
Do I have to tell my current lender?
We would always recommend that you tell your lender, in advance, of any changes that affect how the property is to be used.
When you applied for your mortgage you were agreeing not just to keep up the monthly mortgage payments, but also to use and occupy the property as specified by the lender. Nearly all residential mortgages include a condition that states the property cannot be let without obtaining the lender’s permission.
Running it as an Airbnb or holiday rental without permission can have serious consequences. In the most extreme this would be the lender demanding immediate full repayment of the mortgage (we have seen this happen). It would probably also invalidate your insurance policy.
Is it possible to change my mortgage type?
Yes this will be possible, but there is no guarantee that your existing lender will agree to the change. There are three options:
Ask your lender for their permission
Usually this would be in the form of an agreement called a ‘consent to let‘. Lender’s typically only grant these for short periods, maybe 12-18 months only. Now if you are only letting for a short while, perhaps you are working abroad, then this might suffice. They are likely to raise your interest rate and also charge an arrangement fee.
Ask your lender to change the mortgage type
This will be a long term change from one mortgage type to another. You will need to provide quite a lot of information and may even need to complete a new mortgage application. Once done, you are free to let the property out on a permanent basis.
Remortgage to a new lender and change mortgage type
If neither Option 1 or Option 2 is achievable, probably due to your lender disapproving of the Airbnb element, then you will need a holiday let remortgage with a new lender. Remortgaging a property is a little more involved but it does mean you have the opportunity to pick a deal from the best providers of holiday cottage mortgages. Make sure you consider any early repayment charges in your calculations.
FUTURE CHANGES – Should you wish to change the property usage back to how it was before then you will need to start from Option 1 again.
Can any property be used for Airbnb?
No. You should investigate any Restrictive Covenants relating to your property, this is especially important for leasehold properties such as flats. Commonly covenants will mention noise and nuisance and running a business.
A 90 days rule applies to Airbnb’s in London. It means that your property can only be rented for 90 days in any one calendar year. To go beyond this you would need to seek permission from the local council.
Advice for Airbnb mortgages
Searching for a mortgage that allows Airbnb letting can’t be done through a comparison website, or a trip to the local high street.
There’s only around 20 lenders that offer holiday let mortgages but some of these prefer to only deal with mortgage brokers and therefore cannot help people who enquire direct. While holiday let mortgages are available in Scotland, only around half of these lenders are active.
Compared to a standard buy to let mortgage, a holiday cottage mortgage involves more assessments relating to the property itself, the potential letting income and how the mortgage is to be maintained.
For these reasons alone you will require a specialist holiday let mortgage broker to help you. Independent brokers have access to all of the possible lenders plus exclusive broker only schemes, giving you a lot of choice, together with their expertise.
It’s also essential that you have the correct property insurance in place for whatever style of letting you decide on.
