Securing a mortgage for a property that you intend to rent out, especially if you're not purchasing it outright with cash, requires a buy-to-let mortgage, which differs from a typical residential mortgage.
Residential mortgages generally stipulate that the property cannot be rented out without obtaining prior consent from the lender or a "consent to let", which is a precondition for engaging in any leasing activity.
Interestingly, a substantial portion of residential mortgages go beyond simply requiring consent and impose additional limitations. These can extend to barring short-term rentals facilitated through platforms like Airbnb which can catch many owners off guard.
Airbnb's popularity catches on
The growth of Airbnb as a favoured option for holiday stays, brief getaways, and temporary lodging has transformed the hospitality industry in the past decade. According to the company, Airbnb guests and hosts have contributed an estimated £3.5 billion to the UK’s economy in 2018. As the travel industry started rebounding in 2021 from the pandemic, UK Airbnb hosts have earned more than £1.5 billion.
This surge has led lenders to recognise the potential in these unique rental models that accommodate an array of short-term needs – and not just Airbnbs but also other types of holiday lets as well.
However, just like any other kind of mortgage, lenders will impose strict criteria to qualify for Airbnb mortgages. These include but are not limited to the level of deposit required, evidence of income, credit history, and the permissible duration for which the property can be rented out.
Take note that some lenders impose more stringent conditions than others. As a result, certain mortgage offers might not align with your circumstances.
Why do I need an Airbnb mortgage?
When you start renting out your place, it's not just your everyday home anymore, and that regular mortgage might not quite fit the bill. Many lenders will prefer that you take out a specialised mortgage in this case.
Before you dive in, it's a good idea to chat with a mortgage adviser for valuable advice because if you jump into the renting game without giving your mortgage provider a heads-up, you might actually be breaking your contract and could even lose your place. So, snagging an Airbnb mortgage makes sense to stay on the safe side and keep your investment solid.
Is an Airbnb mortgage right for me?
For those uncertain if an Airbnb mortgage will work for them, you need to consider the following criteria:
1. Investment strategy
Evaluate whether the potential rental income from the property complements your investment objectives and contributes positively to your overall financial portfolio. Consider the operational aspects of managing an Airbnb property, which involves consistent maintenance, guest interactions, and potential regulatory requirements. Being well-prepared for the responsibilities of hosting short-term guests is vital.
In addition, there must be enough rental coverage to demonstrate the ability to generate sufficient income from the property's rental activity. This income is expected to be substantial enough to not only cover the monthly mortgage payment but to exceed it by a certain margin to meet occupancy gaps or fluctuations in rental demand.
2. Potential occupancy rate
Understanding how frequently you can reasonably expect to have the property booked by short-term guests is essential for estimating your rental income and overall profitability. Factors such as demand for short-term rentals, tourism trends, and market competition within that area can significantly impact the success of your investment.
Moreover, consider any seasonality or fluctuations in demand that might impact your property's occupancy rate. Being aware of peak and off-peak periods can help in planning your rental pricing strategies and managing your expectations regarding income.
3. Type of property
Is the property suitable for short-term rentals? Different property types, such as apartments, houses, or even individual rooms have varying appeal to potential Airbnb guests but certain mortgage lenders might be hesitant to accommodate properties categorised as non-standard construction or those that deviate from conventional building methods, materials, or designs. These could include houses built using unconventional materials, architectural styles, or structural elements that distinguish them from the norm.
Mortgage lenders may view these properties with increased levels of risk in terms of maintenance, valuation, and marketability. The distinctive aspects could introduce uncertainty regarding their long-term value and appeal to potential tenants, thereby making them a more uncertain investment from the lender's perspective.
4. How much deposit you can afford
Obtaining a buy-to-let (BTL) mortgage specifically for an Airbnb property requires a larger deposit compared to a residential mortgage. Airbnb properties may carry higher risks due to potential income fluctuations or property management challenges. In addition, a larger deposit mitigates some of that risk for the lender.
Take note, however, that not all lenders adhere to a strict formula, and there's room for negotiation and tailored arrangements. So the can be open to lower deposits, depending on the applicant's financial strength, creditworthiness, and other factors.
5. Restrictions in your area
The "90-Day Airbnb Rule" in Greater London imposes a strict cap on the number of nights a property can be rented out on Airbnb, limiting it to 90 occupied nights per year. This restriction implies that the property's income potential from short-term rentals is inherently limited.
As such, it can be a critical factor for borrowers who were relying on consistent Airbnb income to cover mortgage payments, since the reduced rental availability could potentially affect their financial viability.
6. The type of mortgage that you'll qualify for
Explore the various mortgage options available to you, considering the terms, interest rates, and repayment structures that suit your financial capacity and goals. Overall, aligning your investment strategy with the unique demands of an Airbnb property is necessary for making an informed decision.
Airbnb mortgages
1. Buy-to-let (BTL) mortgage
A buy-to-let (BTL) mortgage offers a versatile option for Airbnb endeavours, but its effectiveness depends on your ability to balance your hosting strategy with the lender's conditions. Although this type of mortgage provides a more familiar process, it's not a one-size-fits-all solution.
Lenders within this category may introduce certain conditions that can significantly influence your Airbnb journey such as placing a cap on the maximum number of days your property can be available for rent, or specifying that rentals must be exclusively designated for holiday accommodations.
2. Residential mortgage
This type of mortgage is suited if the borrower resides in the property and intends to rent out individual rooms or the whole house. The lender will have to provide consent first before the borrower can initiate any rental activities. However, similar to BTL mortgages, they frequently impose caps on the number of days or rooms that can be offered for rent under the arrangement. In addition, using your property as an Airbnb unit may affect your home insurance and might require you to adhere to specific regulations and local laws regarding short-term rentals.
3. Holiday let mortgage
For those considering a holiday let mortgage for Airbnb hosting, some lenders extend the flexibility of using a holiday let mortgage for Airbnb rental that are considered investment and/or second homes.
The property must be available for most of the year as a short-term rental unit in order to qualify. Borrowers should also meet the lender's set criteria such as minimum income level and a specified loan amount range.
Take note that there aren't as many lenders that offer this type of mortgage compared to the BTL and residential mortgages.
Frequently Asked Questions (FAQs) about Airbnb mortgages
1. Can any property be used for an Airbnb mortgage?
Many properties are not qualified to become an Airbnb unit. Some may not meet even common covenants that are required. You should check first if your home can be converted into an Airbnb letting before seeking an Airbnb mortgage.
2. What are the key eligibility criteria for securing an Airbnb mortgage?
It can vary but often include factors like income, property type, occupancy, and adherence to local regulations.
3. I live in London and my property is covered by the 90 Day Rule. Can I still qualify for an Airbnb mortgage after the local council allows me to go beyond the typical 90-day cap for letting my unit?
You need to contact your lender first to have them review your situation.
4. Is my second home qualified for a holiday let mortgage?
If you plan to rent out a single room or the whole property occasionally, then it may qualify for a holiday let mortgage provided that you meet the other criteria set by your lender.
5. Is it better not to inform my lender that I've transformed my property into an Airbnb unit?
No. You will violate the contract terms and conditions in your mortgage and will likely have your property repossessed. Some lenders will ask you to repay the loan in full.
Using a mortgage broker for an Airbnb mortgage
Considering whether to enlist the services of a mortgage broker while exploring Airbnb-friendly mortgages is a smart move. With their expertise, you could potentially tap into a larger pool of lenders and mortgage options, doubling your chances of finding the optimal holiday let mortgage.
A mortgage broker can also assess your specific financial situation and Airbnb goals to offer the best recommendations that align with your hosting plans and financial capacity while considering eligibility criteria, regulatory considerations, and lender preferences.
In addition, going solo on this journey can mean hours of research and countless conversations with lenders. Seasoned mortgage brokers often have established relationships with lenders, saving you time and effort. This can grant them negotiation leverage on your behalf, potentially securing more favourable terms, rates, and conditions than you might be able to secure on your own.
Speak to one of The Mortgage Hut advisers today by calling us at 02380 980304. You also email us at info@themortgagehut.net, or book an appointment through our contact form.
