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
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.”
Sizeable benefits
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.
Speaking on the Diversity and Inclusivity Finance Forum (DIFF) podcast, when asked about any hurdles he faced as a black man with a senior role in the finance sector, Wager said due to social changes over time, he no longer sees any obstacles.
“In an organisation like Barclays, and I suspect any organisation of this kind of size and reputation, life has to be about being a meritocracy, it genuinely has to be. And if there’s anything overt that is unfair, there are the right mechanisms to deal with that,” Wager said.
He said many companies had since established initiatives of zero tolerance towards discrimination.
Wager added: “It’s maybe not so much about hurdles, but I think everyone has become more aware of the unconscious bias that might exist.
“It’s the unconscious bias and microagression element that we need to be more mindful of because I don’t think it’s necessarily about the overt.”
A microagression is an action or statement which could be seen as discrimination against someone in a covert or unintended way.
Wager said: “Those are the things we need to think about if we talk about hurdles, because we all have unconscious bias, but it’s a filter that you apply to your thinking that really genuinely helps you get through that and over that. And I think that’s as individuals and as organisations.”
He said this included “challenging employing in your image,” where a recruiter might favour a potential employee because they have a similar race, class or educational background.
Wager added: “That’s a conundrum I suspect many are struggling with and it’s not necessarily unique to this industry.”
Martin Reynolds, chief executive of SimplyBiz, said part of the problem was the industry operated with a view of “short-termism” and tended to react to calls for diversity rather than plan ahead.
He said the finance sector was too quick to look internally when trying to fill a vacancy and suggested forming connections outside of the sector to build up a pool of candidates with transferable skills.
Reynolds added: “Sometimes we may consciously or unconsciously think actually ‘we do need to widen the diversity in a team, in a company’ and we just take from within the industry. So we’re not actually growing the diversity within the industry, people are just moving around.
“We need to try and break that cycle.”
For new-build houses, there is a two-year fixed rate at 3.2 per cent, down from 3.7 per cent, for those borrowing at 90 per cent loan to value (LTV).
The five-year fixed equivalent now has a rate of 3.4 per cent, down from 3.76 per cent.
Both products have a £495 fee, offer £250 cashback and a free standard valuation.
Across the 95 per cent LTV remortgage offering, the two-year fixed rate product has been reduced to 2.97 per cent from 3.38 per cent. The five-year fix has been cut from 3.46 per cent to 3.16 per cent.
These products have a £495 fee, £250 cashback, free standard valuation and free remortgage legals. A fee-free option at 3.22 per cent, down from 3.69 per cent, is also available.
Longer-term fixes up to five-years have also been reduced by up to 0.10 per cent on selected products at 75 per cent, 80 per cent and 85 per cent LTV. The same term is now available at 90 per cent LTV at a fee-free rate of 2.96 per cent, previously was 3.14 per cent.
Jemma Anderson (pictured), mortgage manager at Accord Mortgages, said: “We continually look at ways to improve our mortgage range to ensure we’re giving brokers and their clients competitive choice and are confident these changes will benefit those with smaller deposits.
“The 95 per cent LTV remortgage options will also be welcome for clients hoping to raise additional capital for home improvements, as well as those with less equity.”
The range will be available from 8 September.
Barclays cuts BTL rates
Barclays has made rate reductions of up to 0.22 per cent across its buy-to-let products for purchases and remortgage.
For purchase and remortgage, the two-year fixed deal at 60 per cent LTV has been reduced to 1.73 per cent, from 1.95 per cent.
At 75 per cent LTV, the two-year fixed purchase and remortgage product has been reduced to 1.92 per cent from two per cent, while the five-year fixed option has been cut to 2.06 per cent, from 2.18 per cent.
All products have no fee.
For buy-to-let borrowers looking to purchase, the five-year fixed at 75 per cent LTV with a £1,295 fee has been cut from 1.9 per cent to 1.77 per cent. A two-year fixed remortgage at 60 per cent LTV with a £1,795 fee has reduced from 1.23 per cent to 1.16 per cent.
These changes will come into effect tomorrow.
According to the Financial Times, in the court documents the homeowners argue the percentage of equity taken by the Bank of Scotland, part of Lloyds Banking Group, was “grossly excessive”.
The action, led by law firm Teacher Stern, will be heard in the High Court and relates to mortgages agreed in the late 1990s.
Teacher Stern said that in the case of one claimant they have been left owing £1.6m to Bank of Scotland after taking out a £187,000 shared appreciation mortgage in 1998 against their £750,000 London home which is now worth £2.8m.
Shared appreciation mortgages are tied to a property’s value. Offered during a short period in the late 1990s by banks such as Bank of Scotland and Barclays before the advent of equity release, the mortgages were billed as a way to fund retirement.
Homeowners were offered the opportunity to release up to 25 per cent of the value of their home often interest free. However, on the sale of the property the homeowner would have to repay the loan in full and 75 per cent of the increase of the value of their home since taking out the deal.
The rapid rise in house prices since the loans were taken out has meant that some shared appreciation mortgage holders have seen their debt rise 500 per cent on the amount they originally borrowed.
The homeowners allege that they were “for the most part financially unsophisticated”, the bank saw “all but guaranteed high returns” and the mortgages had “trapped borrowers in their homes until their deaths”.
The FT reports that value of the claims could be as much as £50m. Teacher Stern’s case alleges that the mortgages were “fundamentally unsuitable” for consumers and “inherently unfair” under the terms of the Consumer Credit Act 1974.
Teacher Stern also led an action against Barclays on behalf of 37 borrowers who took out shared appreciation mortgages around the same time. The law firm negotiated an out-of-court settlement with Barclays on behalf of the homeowners in June.
Bank of Scotland is defending the claim and denies all the allegations laid against it.
It says all borrowers had independent legal advice and its relationship with the homeowners was fair, according to reports of the court documents.
Lloyds Banking Group has declined to comment on the ongoing case but says it continues to offer support options to all mortgage borrowers facing financial difficulty.
The case is due before the High Court in October.
For new customers moving home, its two-year fixed rate at 60 per cent loan to value (LTV) has been cut by 0.04 per cent to 0.87 per cent. It is subject to a £1,499 fee.
Its two-year tracker in the same tier is also a sub-one per cent deal, falling by 0.4 per cent to 0.99 per cent. It comes with a £999 fee.
The products add to the lender’s existing sub-one per cent deals, along with the introduction of a five-year fixed rate sub-one per cent mortgage product in July.
Other reductions for new customers moving home, include the three-year fixed rate at 95 per cent LTV, which has been reduced by 0.25 per cent to 2.99 per cent and comes with a £999 fee.
In its first-time buyer range, rates have decreased by up to 0.3 per cent, with its fee-free two-year fixed rate at 75 per cent LTV falling by 0.3 per cent to 1.44 per cent.
Its two-year fixed rate at 95 per cent LTV has been cut by 0.25 per cent to 2.99 per cent. It is subject to a £1,499 fee.
On the remortgage side, rates have fallen by up to 0.4 per cent. The largest reduction is on the mutual’s two-year tracker rate at 60 per cent LTV, which is now a sub-one per cent deal, and has gone from 1.39 per cent to 0.99 per cent. It has a £999 fee.
Lenders have been slashing rates in recent months, with HSBC, Santander, Yorkshire Building Society, Halifax and TSB among those to bring out sub-one per cent deals.
According to Moneyfacts, the lowest rate on the market as of 2 September is a two-year fixed rate at 60 per cent LTV from TSB, which has a rate of 0.84 per cent.
The lowest three-year fixed rate is a Santander product, which is at 60 per cent LTV and has a rate of 0.93 per cent, whilst the lowest five-year fixed rate is a HSBC product at 60 per cent LTV, priced at 0.96 per cent.
Barclays reduces rates by up to 0.53 per cent
Barclays has cut rates on select purchase and remortgage products by up to 0.53 per cent and brought out a sub-one per cent deal at 0.85 per cent.
The sub-one per cent deal is a two-year tracker product up to 60 per cent LTV, which has gone from 1.38 per cent to 0.85 per cent. It is subject to a £999 fee.
This is the lowest rate that the lender offers.
The lender had brought out some sub-one per cent deals last week, with its two-year fixed rate purchase and remortgage product and two-year fixed rate in its reward range, both at 75 per cent LTV, now standing at 0.99 per cent.
Its fee-free two-year tracker option has fallen from 1.79 per cent to 1.4 per cent, whilst its two-year fixed rate at 85 per cent LTV has gone from 2.05 per cent to 1.95 per cent.
The lender has also brought out a five-year fixed rate at 75 per cent LTV with a rate of 1.52 per cent.
In its residential purchase range, the largest rate cut was applied to its five-year fixed rate at 90 per cent loan to value (LTV), which has fallen by 0.23 per cent to 2.72 per cent. It is subject to a £999 fee.
Barclays’ fee-free five-year fixed rate at 90 per cent LTV has fallen by 0.2 per cent to 2.88 per cent, whilst its fee-free five-year fixed rate at 85 per cent LTV has decreased by 0.16 per cent to 2.39 per cent.
The lender has reduced its five-year fixed rate green home mortgage product by 0.2 per cent to 2.78 per cent.
It has also made cuts to its Mortgage Guarantee Scheme products with its two-year fixed rate falling from 3.4 per cent to 3.15 per cent, and its five-year fixed rate going from 3.6 per cent to 3.45 per cent.
The lender has also brought in a two-year fixed rate product to its Mortgage Guarantee Scheme range, which has a rate of 3.45 per cent and £750 cashback.
In its family springboard range, which uses a family or friends’ savings to secure a mortgage for a separate borrower, its five-year fixed rate at 95 per cent LTV and five-year fixed rate at 100 per cent LTV have gone down by 0.15 per cent to 3.5 per cent and 3.7 per cent respectively.
On the remortgage side, its two-year fixed rate at 75 per cent LTV has been reduced by 0.13 per cent to 1.39 per cent, whilst its five-year fixed rate at 85 per cent LTV has been cut by 0.21 per cent to 2.44 per cent.
Its two-year fixed rate purchase and remortgage product at 75 per cent LTV has fallen by 0.06 per cent to 0.99 per cent, making it a sub-one per cent deal.
Its three-year fixed rate purchase and remortgage product at 85 per cent LTV has fallen by 0.3 per cent to 2.05 per cent and its five-year fixed rate has been cut by 0.19 per cent to 2.18 per cent.
Several products in the lender’s reward range, which covers product transfers and further borrowing, have been cut by up to 0.25 per cent.
The largest cuts have been made to its three-year fixed rate at 85 per cent LTV has gone from 2.3 per cent to 2.05 per cent and is subject to a £999 fee. Its fee-free option has also been by 0.25 per cent to 2.35 per cent.
The lender’s five-year fixed rate at 85 per cent LTV in its reward range has decreased from 2.65 per cent to 2.4 per cent.
Its two-year fixed rate at 75 per cent LTV in its reward range now stands at 0.99 per cent, which is a reduction of 0.06 per cent.
The lender has also removed its premier five-year fixed rate at 75 per cent LTV product, which had a rate of 1.25 per cent and a £599 fee.
