Short-term lets are increasingly attractive to landlords, not just because of the growth of sites like Airbnb, but also because they are treated differently by HMRC compared to a traditional buy-to-let property.
Last month, Brightstar Financial relaunched the specialist lending brand Private Label, with one of the new products on offer specifically designed for the short-term letting market. The short-term let mortgage is funded by Castle Trust, available up to 75% loan-to-value and requires borrowers to have six months proof they can meet the loan repayments from their personal income.
Matthew Wyles, executive director at Castle Trust, explained that many traditional buy-to-let mortgages don’t accommodate short-term rentals as they require an Assured Shorthold Tenancy (AST) agreement to be in place, which is why a new form of mortgage was required.
James Mole, mortgage and protection adviser at Gingko Independent, said that with landlords “being attacked by the government over the last few years” it was no surprise that increasing numbers of clients were asking if they could rent out their investment properties using the likes of Airbnb. However, he warned that unless a client is an experienced investor it’s likely best that they steer clear.
He continued: “What is often not taken into consideration at the time is what happens when your mortgage term ends and the lender asks to see the AST agreement that you have in place with your tenants? If you are not abiding by the lender’s terms and conditions, they can call in the loan for repayment. Yes, there are a few lenders out there which have products designed for this scenario, but they are not as cheap as vanilla buy-to-let mortgages.”
Helen Pierson, head of business development at Mortgage Bureau, said that anything which offers landlords further flexibility and allows them to diversify is good news, but warned the short-term let market will likely remain small.
She explained: “While I can see some additional interest in holiday lets I believe it will be a very small niche market as one has to bear in mind that by its very nature a property let on a short term basis will incur increased operating and maintenance costs that will ultimately affect the net rental yield, so all may not be quite as good as it seems at first glance.”
David Sheppard, managing director of Perception Finance, said that he had seen clients interested in moving into the holiday let market, and highlighted both Leeds Building Society and Principality as lenders who cater for these borrowers, though argued it would be useful if more lenders would consider it.
He continued: “With holiday lets, while there are periods of the year where the revenue can go down this is more than made up for during the summer months. It does tend to only be in areas where there is real interest though, so seaside areas are good for example.”