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Risk and borrower misconceptions mean fewer Airbnb mortgage options – analysis

  • 17/01/2023
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Risk and borrower misconceptions mean fewer Airbnb mortgage options – analysis
Airbnb has called on lenders to allow residential mortgage borrowers to home share, pointing to the cost of living crisis and the potential for the house-sharing service to help alleviate financial struggles.

Brokers said that whilst there were a lot of lenders who did standalone holiday let mortgages, the landscape was more limited for residential mortgage borrowers who wanted to use Airbnb on their own residence.  

According to Criteria Brain, there are 14 lenders that allow residential borrowers to let a room through services like Airbnb or similar.  


Specific criteria 

Joe Stallard, director and adviser at House and Holiday Home Mortgages, said of the few lenders that allowed short-term letting on a borrower’s own home it was normally restricted to certain loan to values (LTVs) and permitted 90 to 120 days of letting. 

Consumer interest in short-term letting has increased recently, as Stallard said: “It’s an enquiry type that we have seen a rise in recently, however, it does pose a problem for lenders as it blurs that boundary between residential and commercially-focused products. 

“Using Airbnb effectively isn’t as simple as taking a few photos and creating a listing. Take the time to understand the platform – that means the risks involved, as well as the potential benefits.” 

He said it was best for borrowers to make lenders aware and seek prior approval. Stallard also stressed the importance of securing the right home insurance policy. 

Chris Sykes, technical director at Private Finance, said: “I think what Airbnb is trying to do here is encourage more high street lenders to allow people to Airbnb their home or part of it for a limited time of the year.”  

He said this could be if they have an annex or converted part of their home.  

“There are lenders that allow this, but there are usually some occupancy restrictions – for example, they will only allow it for up to 90 days per year – but it generally makes sense especially in a time of growing affordability concerns,” Sykes added.  


A higher risk attached 

Sykes continued that when he asked lenders why they do not allow Airbnb-like arrangements but would permit lodgers, they say there is a higher risk. 

“Often a homeowner wouldn’t be adequately insured through their buildings and contents insurance if something happened while a property was let or part let on Airbnb. There hasn’t really been much development in this space in the last couple of years, but it’d be great if there was. It would give borrowers more flexibility,” Sykes said.  

Nicholas Mendes, mortgage technical manager at John Charcol, said that it was becoming “more common” for homeowners to consider sites like Airbnb to let their property on a short-term basis.  

He continued: “The flexibility as well as the potential earning are the biggest draws to homeowners. Circumstances that often drive these opportunities include a change in the relationship dynamics and looking to move in to working in a different location or looking to earn a couple of hundred pounds in the short term.  

“Short-term letting sites offer homeowners the ability to earn without going into the worries of being a landlord.” 

He added that it could be more popular for clients in London, city centres and “desirable retreat locations” to let through Airbnb rather than a buy to let, and in his experience, they will bring it up during the application process.  

He said: “There is an overwhelming majority of both residential and buy-to-let lenders who will not consider properties to be let via Airbnb.  

“The key thing for lenders, especially those that lend on holiday lets, is that they either do not understand the benefits of using Airbnb or they do not have the ability to adapt to a changing market, which is proving to be strong.”

Mendes said that prospective buyers need to think about lenders, check for restrictions, review insurance, price point and tax.  

He added that borrowers with a residential mortgage need to make sure they rent out a room on a short-term basis and so do not need to declare it to a lender; that they you are living in the property for the majority of the year and that if the let is for more than 90 days, they get consent to let from the lender. 


Borrower misconception 

David Robinson, co-founder at Wildcat Law, said setting up an Airbnb may seem like a good idea at first, but many realised it was not a ‘simple’ way to earn more money. 

He added: “Mortgage lenders do not like Airbnb as it introduces additional risk to their security and, frankly, they know that many people go into this without fully understanding the risks. For example, most standard house insurance policies will not cover Airbnb activities so a specialist policy will be required or it will be necessary to take out short-term policies to cover the periods of letting.   

“Then there is the tax implication, especially if the whole property is let out rather than just a room. In addition to a self-assessment return, many may need an accountant to help with their return.” 

Andy Soye, director of Holiday Cottage Mortgages said there was a “massive difference” between renting a room on Airbnb and renting a home on Airbnb as they were “completely different scenarios”. 

He said: “They either do it deliberately and operate a home as a furnished holiday let getting all the benefits that such status provides, or not at all. It’s very difficult to both live in a property and sometimes rent it out entirely – what do you do with all your personal things, for example?  

“There are lots of important legal and health and safety issues that must be in place too – carbon dioxide detectors, fire assessments and so forth plus on-call support needs to be arranged. For these reasons, it’s not common for a homeowner to move out for a week and let their house.” 

Soye said renting out a room and remaining present in the home tended not to be an issue for lenders, however, noting that this activity was promoted by the government. 

“Personally, I think lenders have made it quite clear that if you want to fully short-term let your property, you need a holiday let mortgage as that product has been designed and risk modelled by the lender to match the holiday letting activity profile,” he said. 

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