Launched in 2008, Airbnb is primarily a short-term letting platform with over seven million listings in 220 countries and regions around the world. In its latest figures in 2018 there were around 223,200 active listings in the UK.
Matthew Corker, operations director at Knowledge Bank, said that lenders previously had a very “yes or no” approach to accepting Airbnb, whether that was holiday let or consent to let for residential mortgages.
However, that is changing as Airbnb grows in popularity and staycations increase in numbers, and people opt to rent an Airbnb for work as a change of scene after working at home.
According to Knowledge Bank and Criteria Hub, around a third of lenders overall accept Airbnb, but there is plenty of variation in criteria.
Most holiday let lenders accept Airbnb as a platform subject to the usual underwriting but there are some caveats depending on the lender.
This could include listing it with a lettings agency in addition to Airbnb, using different methods to measure average income and whether it can be let on an assured short hold tenancy (AST) basis.
On the other hand, a lot of residential mortgage lenders are more wary of it as a platform when it comes to consent to let.
Jason Wilde, national sales manager at Paragon, said: “Many holiday let owners will promote their property on Airbnb, as well as an array of other platforms. We assess lending against any property under our holiday let products based on whether the property could be let on an AST basis, plus whether there is a sustainable rental market outside of tourism.
“This is the default rental figure we base the interest coverage ratio against, rather than the projected holiday rental income.”
He added: “The start of the pandemic demonstrated the reasons for that when we saw many Airbnb apartments switch from short term rentals to ASTs overnight, particularly in city centres. There needs to be an underlying level of demand for the property.”
Corker added: “To summarise, Airbnb searches are up, a decent amount of lenders are open to accepting it but they want assurances such as a confirmed lettings agency, not letting on a room by room basis and making sure the property has a viable back up option of being a traditional BTL if the Airbnb market disappears or doesn’t work out.”
Potential problems cited by both holiday let and residential lenders, include heightened volatility due to shorter rental periods, a lack of legal status compared to an AST and unpredictable demand making income harder to gauge.
Wilde also said higher cleaning and support costs, along with more frequent voids could “mean the economics are not attractive in practice”.
Nick Mendes, mortgage technical manager at John Charcol, said the main problems arise from contracts that Airbnb guests and hosts sign, who has responsibility and accountability for those tenants, and what can be done if things go wrong.
He said that Airbnb contracts can change rapidly between guests and hosts which lenders could “struggle to keep track of”.
He said that AST agreements gave lenders protection because tenants can be easily evicted if there is a problem. For example, a lender can repossess and sell a property if mortgage payments are not made.
Mendes added that assessing annual income and stress testing were challenging due to the “sporadic” nature of Airbnb renting and the fluctuating daily rates compared to AST agreements.
“An AST would set out the cost to be met every month for at least six months up to usually two years,” he said. “That provides stability and any proposed costs can be easily checked against others in the locale. Not so easy to do for Airbnb properties as the checks might be made in a peak season with prices way higher than other parts of the year,” he added.
Mendes said that there was concern from lenders that landlords may be listing properties on Airbnb despite the fact the initial agreement confirmed the let on an AST basis.
He said that whilst landlords would argue that lender’s risk is reduced as income is higher, lenders would say the borrower had broken terms and conditions and did not have adequate buildings insurance or contents insurance in place to protect all parties.
Mendes added: “From the lender’s perspective it is easier and cheaper to say ‘no’ rather than legislate and administrate to permit the use of Airbnb. It is thought thousands of landlords do this up and down the UK though without seeking permission from their lender.”
Whilst listing on Airbnb is considered more high-risk by some lenders, the higher margin, usability of the platform and data opportunities could all play in its favour.
Mendes said that the amount of data held by Airbnb was “considerable” and lenders could work with Airbnb to “positively affect” agreements between hosts and guests.
Lenders and valuers could also access actual rental history data, which would “help ascertain the true potential income of that property”.
He said: “By working together more can be understood. The more that is understood the perception of risk levels may change in favour of relaxing requirements and opening the market. Most importantly in my view, it could reduce or stop landlords from doing things behind a lender’s back.”
He added: “The benefits to lenders are potentially quite sizeable. Not only would they lend more money and collect more interest as more people see it as a profitable business they can manage easily. It would reduce instances of discovering a borrower has broken their terms and conditions causing costly investigative work and resolution.”
Brokers added that the popularity of the platform, which made 193 million bookings and had around 150 million users last year, meant that it would become increasingly important in the years to come.
Barclays changed its policy last year so new and existing mortgage customers could rent their property on a short-term basis through approved platforms. Airbnb was the first platform to be approved.
A spokesperson said: “Both lenders and homeowners can benefit from this policy. For example, customers who list their property on Airbnb on a short-term basis do so within the terms and conditions of their mortgage and are able to earn additional income through short-term letting.
“Additionally, if a customer does want to let out their home for a short period of time, the property remains occupied and kept to a good standard meaning the lender’s security is maintained.”
Future growth or contraction
There was disagreement amongst brokers and lenders about whether the popularity of Airbnb, and staycations, is a sustainable long-term trend.
Some said that as some UK consumers are still reluctant to travel internationally the popularity of the staycation would continue into the future, and the tax advantages of holiday let properties over BTL would continue to attract landlords.
This in turn would mean that the holiday let market would remain buoyant, and the value of Airbnb as a listing platform would stay strong.
Wilde said that the holiday lets market had expanded since the start of the pandemic as more people take breaks in the UK. He added that there were also tax advantages to holiday lets which made them appealing.
“The increase in UK domestic tourism is a long-term shift, whilst the easing of travel restrictions should start to boost overseas visitors next year. Combined, that gives lenders comfort that there is a strong underlying demand for UK holiday lets.”
However, others said that the pandemic showed that short-term lettings were more unpredictable as lockdowns slowed that demand for Airbnb
Mendes said: “Understandably two years ago many landlords and industry pundits would have said that this rapidly growing market needs to be catered for, and then the pandemic hit.
“This stopped travel for months and months and the market has still not recovered. Many lenders will be very glad they did not permit Airbnb, which is a problem in changing mindsets going forward potentially.”
Some also pointed to an increased pushback against Airbnb from local residents in cities like Barcelona and Edinburgh, where action is being taken to ban short-term lets.
Differing opinions as to whether staycations, and by consequence shorter term lets, will be a longer-term trend or will be increasingly regulated will create a divergence in the market between those who will accept Airbnb and those who do not.
However, there is no doubt that Airbnb holds a significant market share of the rental market and will remain a vital player. Figures from Hospitable estimate that in 2019 Airbnb had a 20 per cent market share of the rental market, and that is only set to grow.
Clearer criteria will put lenders at an advantage if brokers and borrowers have a better idea of where they stand on short-term letting.