Investing in property and renting property is big business in the UK.
Today there are around 2.6 million landlords in the UK who own privately rented properties, providing homes for around 5 million people.
Buy to let is definitely the most popular and is widely known by most people. But there are different ways to rent out a property.
An alternative is to provide a fully furnished property that is available to rent for short periods only. Depending on the specific use this could be either serviced accommodation or holiday let.
The guide explains what serviced accommodation is, who it might be suitable for and what mortgage solutions are available.
What is serviced accommodation?
Let’s start by looking at a buy to let property.
This will be let to one tenant who will have signed either a 6 month or 12 month assured shorthold tenancy agreement. They will then use this as their main residence on a permanent basis. In fact many tenants will have rented the same home for many, many years.
A buy to let property can be offered as furnished or unfurnished.
Serviced accommodations are always fully furnished residential properties (house or flat) which are let out on a short term basis. A housekeeping service will be required, either weekly or more frequently.
You let your property out to ‘guests’ rather than tenants, who will pay for their stay in advance. Often for just a few days or a few weeks at a time.
Situated between a holiday-let and a hotel, serviced accommodation is popular among tourists, business travellers, and contractors working away. Some purpose-built serviced accommodation blocks will have gyms, restaurants, and 24-hour concierge services.
Why would a landlord want serviced accommodation?
The main reason that a landlord would want serviced accommodation (SA) is that the returns are much higher than the equivalent buy to let.
With a traditional buy-to-let property, with a tenant on a six-month assured shorthold tenancy (AST) agreement, the rent is set and paid monthly, or weekly.
This does provide a good steady income but the benefits of SA are that the overall rental income can be higher and tenants only stay for a few days or a few weeks.
And there’s no Section 8 or Section 21 to worry about.
There is some additional work needed to market the property, many people will use Airbnb, and there are costs that go with this. You will also need a good team of housekeepers, cleaners and maintenance people.
What should serviced accommodation include?
Serviced accommodation is a self-contained, fully furnished, dwelling that provides a comfortable home from home for guests.
Like a hotel, or holiday let, all bills are included in the price charged.
You should expect to provide the following:
- kitchen – including all utensils, crockery and cooking equipment
- dishwasher and a washing machine
- bathroom – towels should be supplied
- living area – furnished and with a television
- good wifi – many people will work when they stay
- bedroom/s – bed, linen, blankets, duvet etc
- services – electricity, gas, water
- housekeeping – both for in-between stays and also during longer stays
As with all properties, the more you can offer, the more you can charge. You will be able to charge more if the property has:
- off street parking
- garage
- study/work space
- good access to road networks
Not on the High Street!
The high street lenders can’t help every mortgage customer and they prefer the simple, low-risk ones.
If your situation is a bit different or needs a more personalised solution then our brokers can help.
Expert advice, for all situations.
Bridging Loans
The most flexible of secured loans and often misunderstood. Bridge loans can be used in so many different ways and can be arranged super fast.
Large Loans
High net worth mortgage brokers understand complex large loans and unique situations and can source bespoke deals from the right lenders.
Let to Buy
Let to buy combines a buy to let remortgage with a residential mortgage. Allowing you to move house while keeping your current home.
Sounds very similar to a holiday rental?
There are a few similarities between serviced accommodation and a holiday rental or holiday let.
However, whereas an SA is available to rent from one night to several months, a holiday rental is usually just for weekends or a few weeks at a time.
Also with a holiday rental the guest is staying on a self-catering basis, so you would not need to provide a housekeeping service during their stay.
Many landlords have targeted contractors when marketing their properties. Certain types of contractors will need to travel to different project locations and will often be needed there for weeks or months at a time.
So having a contractor renting your SA for 6/8/10 weeks solid is good business to go after, if that suits your market.
What type of mortgage is needed?
With the rise in popularity of ‘staycations’ and Airbnb, serviced accommodation is now a serious rival to hotels. Many landlords have moved away from the vanilla buy to lets over to holiday rental or service accommodation.
As this type of ownership has grown, so has the need for lenders to offer competitive finance for these types of investment properties.
Serviced accommodation mortgages are ideal for landlords that wish to cater for the Airbnb, contractor and business traveller markets.
Serviced accommodation mortgage lenders will be looking to see that you can afford the repayments, so they will look at your personal income and will also look at the property that you are purchasing, with its suitability as serviced accommodation.
You may be surprised to learn that there isn’t a ready made ‘serviced accommodation mortgage for ‘you to search and apply for.
It’s possible that this may change in the future as the sector grows.
A buy to let mortgage would be the obvious place to start. The lenders offering these will be basing the mortgage offered on the rent for a buy to let and also need the tenants to be living there with an AST. In short, they need the tenants to be long term residents who use the house as a permanent residence.
For this reason a buy to let mortgage is not suitable but a second home mortgage ‘may’ allow some short term letting but the number of days allowed could be quite limited.
The best match would be a holiday let mortgage or holiday cottage mortgage. Both of these are expecting the property to be used for short term lets only, which matches the service accommodation model.
Properties can often be set up as multi unit lets and it may even sit on the plot of another, much larger house. Financing for these tends to be offered by those lenders who have a commercial mortgage facility. This doesn’t always mean that the loan is more expensive, or harder to get. It just requires a more experienced eye before a final decision is provided. It’s quite common for holiday lets to come under mixed-use holiday let or multi-unit holiday let, and there’s a good choice of lenders who are comfortable with these.
If you are still choosing between a holiday let or buy to let, it may be worth looking at the difference between a holiday let mortgage and a buy to let mortgage before making a firm decision.
Mortgages are available up to 75% loan to value, with the usual choice of fixed, variable and tracker rates.
The amount you can borrow is calculated from the SA income. You will find that almost all of these mortgages are personally underwritten, rather than just being processed through a computer.
These mortgage lenders are not that easy to find, particularly as they do not advertise a ‘serviced accommodation mortgage’ product. The best option would be to speak with a holiday let mortgage broker who has experience in this area. There are many lenders looking for SA business, and many of these only deal with brokers or intermediaries.
Planning permission
Where a property is to be used for business purposes, or to let out to tenants, it’s a good idea to check out whether there are any planning restrictions on how the property can be occupied.
There are currently no specific planning rules for serviced accommodation, which falls between a buy to let, holiday let and a hotel.
It’s vital that you seek advice from your local authority before buying or converting a property.
Some councils restrict the number of days in a year you are able to rent out as short-term lets – which significantly reduces the potential income.
The London 90 day rule
If you operate short term accommodation within London you should know about the 90 Day Rule.
Within London you can sub-let your home for a maximum of 90 days per calendar year. Simply put, if you live in London and put up your whole home on Airbnb, you are allowed to have guests stay for a maximum of 90 nights a year – Airbnb has a counter so that you can see how many nights you have left.
Once you have reached your limit planning permission is needed to extend the number of nights as a ‘material change of use’. That is unless of course you wait until the next calendar year and use another packet of 90 days.
