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Brokers urge lenders to launch into Airbnb mortgages

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  • 21/01/2019
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Brokers need more lenders offering Airbnb mortgages, following the growing demand from clients who wish to purchase on a holiday let basis, analysis conducted by Mortgage Solutions found.

 

The weaker pound is already encouraging more international visitors into the UK and the potential for travel disruption around Brexit could lead more people to holiday at home.

At present, less than 10 lenders have already entered this market. The list includes Tipton & Coseley BS, Foundation Home Loans, Principality, Leeds BS, Dudley BS, Newbury BS, Harpenden BS, where Precise and Paragon offer holiday let mortgages.

However, Mortgage Solutions talked to a number of brokers who have predicted an increase in the number of lenders that might start offering Airbnb mortgages throughout 2019.

Overall, more than half of all Airbnb listings are for entire properties, suggesting a large opportunity for both lenders and brokers.

Mortgage adviser Malcolm Fitchett, from Platinum Options, revealed that the appetite comes mainly from regional building societies and challenger banks.

“So far, my feedback has been positive as I’ve completed around 35 Airbnb mortgages over the last six months, and I expect more lenders to join the market by the end of the year,” he added.

Director of lender relationships and new homes at Alexander Hall, Greg Cunnington, agreed with Fitchett, adding that he expects to see small lenders and building societies entering the market in the short-term.

“However, I would not be surprised to see larger lenders entering by 2019-end,” he said.

Tipton is among those lenders that have recognised a growth opportunity in the applicants wanting to let their properties on an Airbnb basis.

However, Tipton’s director of sales and marketing, Cammy Amaira, clarified that its Airbnb offering is not a specific product.

“It is a feature on a residential mortgage for a second home or holiday home which can be let out on an Airbnb basis. We think this is an exciting offering to people with second homes or holiday homes and broker feedback has been positive to date,” he added.

 

Clients call for flexibility

Brokers have highlighted that more and more clients wish to purchase on a holiday let basis and want as much flexibility as possible on how they let this out.

As yields have lowered on what would be seen as traditional buy-to-let properties, clients are looking more and more into alternative types of buy to let (BTL), according to Cunnington.

“These include houses of multiple occupation (HMO) and multi-unit properties which we are also seeing more inquires for,” he added.

Mortgage broker Chris Fyfe from Bluesky Mortgages, pointed out that the holiday let market is now quite limited as not many lenders are active in it.

However, looking at the year ahead, he predicts that further lenders will respond to this demand coming mainly from younger people, who tend to need more flexibility.

He added: “This rise in the number of lenders offering Airbnb mortgages may give landlords further options as well as the opportunity to be more involved in the BTL market, which did not go very well last year.”

 

Advantages for property investors

In the wake of the strong demand for this type of product, Liz Syms, from Connect Mortgages, pointed out that there are advantages for property investors, including increased rental yields and this type of letting also sits outside of the tax rules for BTL.

“This is because it is run as a business rather than a BTL, meaning all the mortgage interest can be offset against the income before paying tax. As more investors are seeing these advantages, more lenders are entering this market to accommodate them,” she added.

However, she clarified that the underwriting for affordability will still be based on the assumptions of the income if the property was let on a normal AST (Assured shorthold tenancy) basis.

“This can work for many applicants, but some applicants need the affordability to be based on the higher Airbnb income. To do this, they will need to use a more commercial based lender.

“The reason is due to risk of default. If the applicant stops paying the mortgage for any reason, the lender knows they could look to take over the property and run it as a BTL, and the mortgage payments can still be met. This also gives the applicants that option if they run into letting by Airbnb difficulties.”

 

Restrictions

Landlords who want to let their property via Airbnb should check with their lender that there are no restrictions on their mortgage, director of mortgages at Paragon, John Heron, suggested.

“If so, they may need to remortgage onto a more suitable product,” he added.

Indeed, Cunnington said that most lenders may require properties to be let on a standard AST basis and do not allow Airbnb letting. As such, the terms of the mortgage would restrict a client from letting on this basis with most standard BTL mortgages.

John Charcol senior mortgage technical manager, Ray Boulger, explained that if the whole property is being let, there will be a maximum period, typically three months, and expected rental income will be ignored in the affordability assessment.

“Being able to prove adequate rental income will be the key point, unless the borrower’s earned income will support the mortgage. It will be easier to arrange if there is a track record for at least a year to confirm adequate rental income is received,” he added.

Marketing director for Foundation Home Loans, Jeff Knight, explained that landlords as well as brokers should be aware if there are local planning restrictions for short-term let properties.

“However, outside London, there is no specific limit on the number of days a property can be let out on a short-term basis,” he added.

Knight also explained that while a normal BTL will have a six to 12 month contract with a tenant, short-term lets can be for any duration of short-term holiday let.

“On an Airbnb mortgage, the key difference is that ASTs are not required and sometimes the rental assessment is different, as it can be annualised, as long as the annual rent stacks up,” he concluded.

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