What's the deal with AirBnB Mortgages?

airbnb-mortgages
22 August 2019

AirBnB Mortgages: What’s the deal?

Over the past few years, the number of queries we’ve received from investors looking to use the AirBnB platform – instead of the typical 6-month Assured Shorthold Tenancy (AST) agreement – has increased dramatically.

A year ago, the short answer to this question a year ago would have been: No. Lenders across the board would not allow their buy-to-let (BTL) mortgages to be used to let the properties as serviced rental apartments. But, fast forward to 2019, and the landscape looks very different. And it’s good news, if this type of mortgage situation appeals to you.

Following punishing tax reforms – extra stamp duty, restrictions on borrowing from lenders, and increased scrutiny on portfolio landlords – there are a number of lenders that have come in from the cold and have embraced the new platform.

AirBnB takes off

This surprising news is not without its frustrations.

Perhaps the most notable issue is that most lenders who allow AirBnB still use the market AST rent as a primary factor in the maximum loan amount. This means that mortgages for AirBnB properties are assessed in the same way as more typical 6-month AST ones.

While this might appear to render allowing AirBnB letting pointless, this is to help encourage buy-to-let investors to diversify their portfolios to protect against both the current uncertainty in the UK property market , and also to offset the increased costs BTL investors can come up against.

Even so, the bottom line is that AirBnB, against the right property, can be extremely lucrative.

In this post, we explore some of the more popular cities in the UK using data on average incomes and referencing this against average asking prices, as well as a few other factors. We also explore some of the attitudes lenders have towards these properties and some of the key criteria to be aware of.

Ultimately, we show that mortgages for AirBnB-style buy-to-lets is now a very viable strategy and may be a great way to generate revenue.

Times have changed

Traditionally, lenders were not keen to lend against properties let through the AirBnB platform. In the past, some BTL lenders have offered holiday-let products, but many were only interested in homes let through traditional holiday websites where they could be fully managed.

In contrast, AirBnB can add a lot of uncertainty and additional risk. Properties marketed on the AirBnB site are much more diverse, from cottages in the country through to city centre apartments.

Not only that, cities around the world have introduced numerous restrictions on buy-to-let properties being used purely as serviced apartments. London notably introduced a law in 2017 that limited owners from letting their homes through AirBnB for a maximum of 90 days.

As a result, lenders have played a waiting game. However, under increasingly tough market conditions, many have now decided to change their policy and to allow these products.

One question we get asked a great deal is “Why do we need to disclose? How will the lender know?”. Well, they probably won’t initially.

But, when remortgaging, this could easily come to light and result in declines. Most importantly, being in breach of your mortgage contract will invalidate your buildings and contents insurance, meaning that you might get saddled with huge costs if your guests damage the property. AirBnB does provide some protection but it doesn’t come close to the level of cover you would typically expect from a home insurance policy.

HMRC are also actively looking for those evading tax. By simply scraping websites and cross referencing data, it is quite easy for them to spot people flouting the rules, with significant consequences lurking just behind.

Our advice? Just don’t do it. You might pay a little more in the short term, but it’s pennies compared to the big risks you might face.

Where should you buy property to let through the AirBnB platform?

By referencing data collected by Hitachi Capital about the most profitable cities to AirBnB and cross referencing this against data collected by Hometrack, we can see that Gross Annual Yields for AirBnB rental properties can be as high as 15% in some cities.

Bath especially benefits from reasonable house prices, yet attracts very high annual rents. Glasgow and Liverpool are both extremely affordable too, yet still deliver great returns.

While London, Cambridge and Oxford are some of the most prestigious areas to AirBnB your investments, house prices are prohibitive. Having said that, Capital Growth is stronger in these areas, and for many that’s just as important.

CityAve Monthly RevenueOccupancyAverage nightly rateAverage PriceAnnual YieldLast 12 monthsLast 3 monthsLast month
Bath£2,22157%£142£168,30015.8%3.2%1.9%0.6%
Glasgow£1,47170%£83£124,60014.2%2.9%0.7%0.0%
Liverpool£1,37541%£114£124,00013.3%4.9%2.6%0.8%
Edinburgh£1,84474%£101£232,2009.5%5.1%1.7%0.3%
Newcastle£1,01635%£99£128,1009.5%1.5%0.8%0.3%
Nottingham£1,13251%£87£155,8008.7%4.7%2.0%0.6%
Birmingham£1,14553%£87£166,9008.2%4.0%2.2%0.6%
Sheffield£92654%£75£139,4008.0%3.5%1.4%0.4%
Manchester£1,11045%£91£171,1007.8%4.1%1.6%0.4%
Leeds£1,06248%£89£168,3007.6%3.2%1.9%0.6%
Southampton£1,41258%£101£227,3007.5%0.5%0.6%0.3%
Cardiff£1,28443%£119£211,1007.3%4.7%1.8%0.2%
Aberdeen£93665%£62£160,0007.0%-3.2%-0.9%0.3%
Bristol£1,50974%£88£280,7006.5%2.0%1.6%0.6%
Oxford£2,06670%£118£404,3006.1%0.5%0.0%-0.5%
Bournemouth£1,45454%£100£291,8006.0%0.7%0.9%0.5%
Cambridge£1,84768%£118£425,7005.2%-0.3%2.4%0.4%
London£1,95166%£126£484,2004.8%0.0%1.5%0.4%
Leicester£63345%£69£180,2004.2%4.6%1.6%0.2%

 

So now we know why, and where…

Who’s going to fund AirBnB mortgages?

Below we have collated the main lenders in the AirBnB market, as well as their key criteria, to give you a basic overview of the key criteria to have on your list.

Of course, personal income, portfolio size, experience, credit score and a myriad of other factors should also play a part in your considerations, so we would always recommend speaking to us before making a commitment. However, what we hope to do is provide some assurance that the AirBnB market is now becoming a very real reality.

LenderMax Portfolio SizeMin IncomeMax LTVLimited Company?Rental Notes
FoundationNoneNone75%YesAST rent used. 125% @ 5.5%
AxisNo Maximum (3 BTL minimum)None75%YesAST rent used. 135% @ 5.5%
BathNo Maximum (£1m max borrowing)£30k75%No75% of annual rent used. 130% @ Pay Rate
Leeds10 mortgaged properties£40k70%NoAST rent or 12 month rental history used. 140% @ 5.5%
Principality3 mortgaged properties£30k75%NoAST rent used. 145% @ 5.5%
ParagonNone£25k70%YesAST rent used. 130% @ 5.5%
Furness10 Properties£30k75%No50% of gross annual rent used. 125% @ Pay Rate
Tipton3 Properties£20k75%NoAST rent used. 125% @ 5.5%
Harpenden3 Properties£30k75%NoAST rent used. 130% @ 6.91%
Market Harborough3 PropertiesNone70%NoFull personal affordability checks carried out.
TogetherNoneNone65%YesAST rent used. 120% @ 5.5%
MasthavenNone£25k70%YesAST rent used. 125% @ 5.5%

 

If you’d like to sound this out with us, pick up the phone and give us a call on 0207 183 1101 or email sales@aaltomortgages.com for a free no-obligation chat to run through the numbers, hash-out quotes and assess some potential properties.

 

 

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