Understanding the right mortgage for your property is important, especially as the trend towards short-term rental services like Airbnb continues to grow.
There are numerous factors to consider when financing an investment property in this evolving market.
Are you considering stepping into the world of Airbnb hosting?
Whether you’re dreaming of turning your spare room into a cosy haven for travellers or planning to invest in a property solely for short-term lets, understanding the mortgage landscape is an important first step.
In this article, we’ll guide you through the maze of mortgage options tailored for the unique demands of Airbnb hosting.
How does an Airbnb property work?
In the UK, Airbnb properties are a popular way to earn money.
Think of an Airbnb property as any space you own or rent out to guests for a short time, usually from one night to a few weeks. You can list your property on the Airbnb website, describing its size and amenities, setting your prices and house rules.
Guests then browse these listings and book a stay at the place they like, with all payments handled securely through the website.
Before you put your property on Airbnb, it’s vital to know the local laws and regulations about home-sharing in your area. Some places might require you to register with the local authority before accepting bookings.
You also have to choose how you want to host – do you want to interact with your guests or prefer to keep a distance? The level of involvement is up to you, but usually, some communication between you and your guests is beneficial.
As a host, you need to ensure your property meets certain safety standards before listing it on Airbnb.
This means proper fire safety measures, working smoke detectors and carbon monoxide alarms, tested and certified electrical appliances, clean bedding free from dust mites, secure access points, and furniture that meets health and safety standards. Remember, this is not a complete list, so always check the landlord laws in your area when listing on Airbnb.
When choosing guests, it’s wise to read the reviews left by previous customers and check their profiles on Airbnb. Reviews are a great way to gauge the reliability of potential guests, but remember to use your judgement as well.
What mortgage do you need for an Airbnb?
The reality is that mortgage suitability for an Airbnb property varies based on several factors. These include the specific characteristics of the property you’re considering, your personal financial situation, and the particular lender you choose to work with.
The mortgage you’ll need depends on how you plan to use your property:
Renting Out a Room Occasionally
If you’re thinking of renting out a room in your house now and then, you should inform your lender. Most lenders are likely to be okay with this, but it’s always best to check.
Occasionally Renting the Whole House
If you plan to rent out your entire house for parts of the year, a residential lender might not be as accommodating. Residential mortgages are generally provided on the understanding that the property is your main residence. Renting it out, even occasionally, can change that dynamic.
Holiday Home Usage
If you’re dealing with a holiday home, lenders who specialise in holiday home mortgages usually expect the property to be let out for a bit. The exact terms can vary, but often, letting for up to 90 days a year is allowed. It’s crucial to confirm this with your lender.
Actively Renting the Whole House
If you’re planning to rent out the entire house on a more regular basis, it won’t be considered your primary residence anymore. In this case, the most fitting mortgage would be a holiday let mortgage or a serviced accommodation mortgage. Both of these options are tailored for properties that are rented out regularly and are not the owner’s main home.
Mortgage possibilities
Let’s run through the different mortgage possibilities and see what might fit an Airbnb.
Residential mortgage
Trying to use a residential mortgage for Airbnb purposes can give mixed results. Success relies on the lender you have now, and how accommodating they are.
Be aware that many lenders impose restrictions on how often and how much of your property you can rent out. Often, this limit is up to 90 days per year for any rooms you’re allowed to rent.
Additionally, it’s required that you inform your lender and obtain their consent before proceeding with any rental arrangements.
Buy to let mortgage
Strictly speaking, buy to let mortgages don’t fit the way that an Airbnb rental works.
This is because a buy to let is designed to finance a property that will be the tenants main residence and will be let for a minimum of six months, under an AST agreement.
Lenders will assess the income on the basis of an AST and not Airbnb/holiday let income. They would not normally permit you to live or stay in the property.
Holiday let mortgage
A holiday let mortgage would be very suitable for an Airbnb property where you let out the whole property for most of the year.
The lenders are expecting a high turnover of guests, with some periods where no-one is in occupation. They would be able to use the Airbnb rental income when calculating the mortgage.
They would be happy for you to use the property for short stays.
Holiday home mortgage
A holiday home, or second home, is one that you own in addition to your main residence.
Most holiday home mortgage lenders will allow for the property to be let to paying guests from time to time. But this should not happen on a permanent basis.
Lenders will generally want to specify a maximum number of days for the short-term letting, such as 90 days in any one year.
Commercial mortgage
These are a useful option where the property has mixed use, such as a commercial building that also has residential accommodation or letting units.
A commercial mortgage that was used to purchase land or a commercial building would not necessarily permit Airbnb style short lets as standard.
You need the right lender who understands how this style of letting would work.
That said, commercial loans are very useful for short term lets where the property itself is very large, has out buildings or converted buildings, and involves a mixed use.
What is a serviced accommodation mortgage?
Situated between a holiday-let and a hotel, serviced accommodation is popular among tourists, business travellers, and contractors working away. Serviced accommodation mortgages are ideal for landlords that wish to cater for the Airbnb, contractor and business traveller markets.
Airbnb lenders
As Airbnb’s popularity grows, more lenders are showing flexibility in approving mortgages for short-term rentals like Airbnb.
While there’s often a perceived risk due to the lack of a letting agent and reduced personal interaction between the host and guests, the growing reliance on digital technology in various aspects of life is easing these concerns. Digital platforms offer enhanced accountability through reviews, feedback, and data tracking.
Mainstream lenders are gradually adapting to this new lending landscape by introducing variations of holiday let-style mortgage products.
Specialist buy-to-let lenders are more Airbnb friendly, and generally better at adapting to different styles of letting. They’re open to considering broader factors in assessing your financial situation and the property, including understanding seasonal income variations.
These specialist lenders often don’t advertise directly to the public and prefer to receive applications through intermediaries and brokers.
There are a good number of lenders who are happy with Airbnb lets. They aren’t always easy to find so it’s a good idea to approach a specialist mortgage broker who will know who to approach for the best result.
Will you need a new mortgage?
It depends…
If you are in the research stage of purchasing a new property then you may need to approach some different lenders.
First you need to work out how the new property will be used. Is it purely an airbnb style let? Or is it more of a second property that will also be let to paying guests for just a few weeks here and there?
‘How’ you will be using the property is key to finding the right lender.
But what if you already own the property?
This scenario requires a bit more research, and still relies on how the letting will work.
Whatever type of letting you decide on, you will need to approach your lender. You need them to approve what you are doing, and to ensure you are not in breach of your mortgage agreement.
There’s a few different outcomes to this request:
They say yes!
This is the best outcome, as it’s likely to be the quickest and cheapest. Normally this would apply where the lenders agreement already includes permission for letting.
They offer a consent to let
A ‘consent to let‘ is a formal agreement between you and your mortgage lender, that grants you permission to temporarily rent out your home. Not all lenders will offer this facility.
They say yes but…
..you need a different type of mortgage. This will be a bit like remortgaging with the same lender. You will need to make a formal application and provide all of the usual proof of income paperwork etc.
They say no
You have little choice but to apply for a remortgage with a new lender. This new mortgage should suit the type of airbnb letting you want to do. (holiday home remortgage, holiday let remortgage etc).
Telling your lender
Don’t even think about not telling your lender.
Most mortgage agreements have specific terms about how you can use your property. Renting out your home, even for short periods, will probably require consent from your lender.
It’s better to be upfront and avoid any potential breaches of your mortgage agreement.
Hosting on Airbnb without your lender’s approval can lead to significant issues.
In a severe scenario, your lender might require you to pay off your mortgage immediately, although this is quite extreme.
More commonly, you might face increased mortgage rates or be charged additional fees.
Property Insurance
Your home insurance is another area where problems can arise.
Renting out your property without the appropriate insurance coverage can put your home at risk. Standard policies typically don’t cover Airbnb-style lettings, so it’s important to discuss this with your insurance provider.
You may need to switch to a policy that specifically covers short-term rentals.
Mortgage advice
As with any style of mortgage, it’s important to get the right advice so that you secure the best type of mortgage deal, and not upset your lender.
Airbnb mortgages are rarely straightforward and not available from many lenders.
By using a whole of market mortgage broker you will gain access to over 100 lenders. Your broker will know which ones are happy to consider airbnb style letting, for either a purchase or remortgage.
A lot of suitable lenders either don’t allow borrowers to approach them directly, or they don’t advertise the fact that they deal with airbnb mortgages.
They prefer to have their mortgages introduced by qualified brokers, who will have already checked that the clients understand the mortgage requirements, and meet the lending criteria.
Call us on 0330 030 5050 so we can introduce you to an airbnb mortgage specialist.
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