Lenders still hesitant about accepting Airbnb but benefits could be ‘sizeable’ – analysis
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.
Criteria Hub hits 80-lender milestone with MPowered Mortgages addition
The portal allows advisers to source products for their clients based on the criteria of different lenders.
MPowered Mortgages, subsidiary of MQube, launched into the unregulated buy-to-let sector in March, with an aim to provide funding to individual, limited company and portfolio landlords through its MPowered digital lending platform.
Emma Hollingworth, sales and distribution director at MPowered Mortgages, said: “As a fintech business and a new lender in the market, we are committed to identifying ways that technology can better serve brokers and their clients to help make the mortgage process more efficient.
“Criteria Hub is an innovative solution which delivers clear benefits to brokers and we are delighted to be the 80th lender on board.”
Neil Wyatt (pictured), sales and marketing director at Mortgage Brain, added: “This is an incredible milestone for Criteria Hub to reach in such a short period of time. The last year has been a tumultuous one for the mortgage market, with lenders changing their products and criteria at a rapid rate.
“Criteria Hub has been a valuable tool for brokers, keeping them on top of those changes so that they can swiftly identify the best lenders for their client’s requirements.”
Rewind Wednesday – Mortgage Administrator Ivent: Part II
The next two presentations focus on product criteria evolution during the pandemic, and how the protection space has developed. They are:
Understanding the evolving product criteria mix
Jason Hegarty, founder of Criteria Hub
In this session, Jason Hegarty outlines the vast scale of changes to lender criteria since the Covid-19 pandemic began and how to keep up to date with those changes.
He also discusses how these changes impact on client conversations and the advice process for adviser colleagues?
Sector focus: protection and GI
Andy Walton, protection proposition director, Mortgage Advice Bureau
Here, Andy Walton asks why is it particularly important now that every customer receives protection advice and why are some customers choosing not to take it?
He also delves into the role of administrators in making sure that customers have adequate cover and the importance of client communication and reminders and liaison with adviser colleagues.
The Mortgage Administrator Ivent 2020 is now accessible on demand for free to all mortgage administrators via the following registration link: https://www.mortgagesolutions.co.uk/events/mortgage-administrator-ivent
Mortgage Brain launches lender service level tracker
It covers the residential and buy-to-let markets and includes metrics on call waiting times, live chat and application processing times.
The data will be updated mid-morning every working day and will be available through the Covid-19 support hub area on the Criteria Hub website.
The technology firm said the service “collates information from multiple lenders’ websites and provides a single source for advisers detailing how long various lender processes are likely to take, helping both advisers and lenders to manage expectations.”
It noted that the housing market was seeing raised activity levels, with many lenders receiving record volumes of applications, but this was having a knock-on effect on lender service levels.
Neil Wyatt, sales and marketing director at Mortgage Brain, said: “With the unprecedented levels of applications and requests, lenders are doing their utmost to cope with the demand on their operations.
“It is apparent through conversations with intermediaries and lenders that transparency with regards to expected service levels is vitally important to all parties.
“Providing brokers with a single view of lenders’ service levels will save brokers time visiting multiple websites and at the same time help provide valuable information that allows all parties to be absolutely transparent when making recommendations and setting clear expectations.
“It will also support lenders by setting broker expectations to avoid any unnecessary calls to processing teams or helpdesks for updates when it is clear that it is unlikely to have been reviewed as this may help some lenders free up additional capacity,” he added.
Underwriting time has quadrupled under lender pandemic strain – iVENT 2020
Speaking at the virtual conference iVENT 2020 , Hegarty said a lender had alerted him to the new timescales as a spike in activity added to the pressure already on firms tackling changes in borrowers’ financial situations.
He said: “That’s a huge difference [in timescales] and that’s a real strain on the capacity of how many cases an underwriter can look at in a single day.”
Hegarty said the additional information required by lenders was drawing out the underwriting process. Where 18 months of income would have been enough before, it does not tell a lender how a business is performing under current circumstances.
How to navigate lender delays
Hegarty said brokers could combat issues around service levels by thinking like an underwriter when submitting an application and giving as much detail as possible.
“The more information you give an underwriter the better, if not they’ll just ask for it anyway.
“You can ensure there is no delay as a result of something you’ve done. When you fill in an application, fill them in 100 per cent completed. Don’t leave any ‘to be confirmed’ address fields, it’s just going to cause a delay,” he said.
Hegarty also suggested brokers log all conversations with lenders in case it needed to be referenced later or used to defend a complaint.
He said brokers should ask clients how quickly they wanted to receive a mortgage offer so they could make informed decisions about which lender to choose.
Hegarty said: “Now is a really good time to understand what service levels are. There’s nothing wrong with excluding or including a lender based on their service levels.
“If time is really important to a customer, that’s a really good justification for why you’ve chosen a particular lender even when they don’t have the best rate.”
Mortgage Brain launches coronavirus information centre
The reference centre by is free of charge and can be plugged into ‘coronavirus hubs’ that have or are being set up.
It comes as advisers have had to grapple with significant changes across the industry since the outbreak of Covid-19.
There been a dramatic reduction in the number of products available, as well as an overall tightening to a number of criteria.
The new section on Mortgage Brain’s Criteria Hub site features three data feeds, with the first covering 19 frequently asked questions about lender policies.
The second feed is updated daily and features specific product changes from lenders, while the third feed consists of industry news stories provided by Mortgage Solutions.
Mortgage Brain is the parent company of AE3Media, publisher of Mortgage Solutions.
Intermediaries will not be required to register to access feeds, and do not need to be current users of Criteria Hub.
Richard Merrett, head of strategic development at Simply Biz Mortgages, said: “We are delighted to partner with Mortgage Brain in delivering a criteria, product and news feed to keep advisers informed as the market responds to the current challenges.
“The ability to capture all of this information in one place is a fantastic support resource to help with client solutions, and will save considerable time and effort in the research process.
“This fits perfectly with the ethos of our recently launched SimplyBiz Mortgages Solution Hub and will be crucial in allowing advisers to spend more time on helping more customers and creating as many good outcomes as possible.”
Mark Lofthouse, chief executive of Mortgage Brain (pictured), added: “The mortgage landscape is moving at a rapid pace as a result of the pandemic, with intermediaries having to keep on top of vast numbers of product and criteria changes on a daily basis.
“We are committed to easing that burden by developing this single point of reference, arming them with the information they need to continue providing the advice and guidance which borrowers rely on.”
Mortgage Brain suspends selected fees to support industry
The firm’s sourcing platform Criteria Hub will be available to new customers at no cost for at least 90 days.
Lenders will be able to make the platform available to their business development managers (BDMs) for free to allow BDMs to update advisers while working remotely.
Mortgage Brain is also in the process of updating Criteria Hub with new coronavirus-related criteria.
In addition, intermediaries using the desktop sourcing system MortgageBrain Classic will be able to have either the online sourcing solution MortgageBrain Anywhere or another laptop licence for MortgageBrain Classic for at least 90 days, at no additional cost.
These measures have been put into place following lender and broker feedback.
Mark Lofthouse (pictured), CEO at Mortgage Brain, said: “At a difficult time like this it’s vital that we come together as an industry and do all we can to support each other.
“Borrowers still need the expert guidance and advice that intermediaries provide, and we must ensure advisers can continue to provide their services without additional financial concerns.”
“Changes to working practices are being introduced at pace and we are doing all we can to help the industry alleviate these stresses and strains as they become apparent,” he added.
Criteria Hub expands search options
The newly added criteria include BTL with refurbishment needed, BTL unemployed applicants and residential and BTL with escalating ground rents.
The new terms are additional to 700 existing criteria that provide 45,000 searchable lender entries. They expand niche criteria and existing searches, it said.
The changes were made largely based on feedback from advisers and lenders.
Criteria Hub was acquired by Mortgage Brain in March 2019, and the technology firm reported use of the system had grown by 70 per cent in the six months following the acquisition.
“Access to specific lending criteria is becoming even more vital because vanilla cases are no longer the norm,” said Mark Lofthouse, chief executive of Mortgage Brain (pictured).
“Brokers can now provide better advice and lender options to their customers. We recognise our customers’ input as integral to us to providing them with the systems they need.
“By expanding our search terms following feedback, we’ve shown our continued support for customers and our commitment to listen, invest and innovate,” Lofthouse added.
Mortgage Brain will finalise integrating Criteria Hub into its online mortgage sourcing system Mortgage Brain Anywhere and its offline system MortgageBrain Classic, in 2020.
Adviser firms currently using Criteria Hub include Countrywide, Fluent Money for Advisers, John Charcol, Mortgage Force, Mortgage Intelligence, Openwork, Online Mortgage Adviser, Tenet, The Mortgage Alliance (TMA) and The Right Mortgage & Protection Network (TRM).
Criteria churn is positive, but watch out for the regulator – analysis
Such a vibrant market may be good for clients, but it levels a serious challenge at brokers who need to keep up to offer the best advice and to stay on the right side of the regulator.
Only this month Robert Sinclair, chief executive at the Association of Mortgage Intermediaries, warned that the Financial Conduct Authority has its sights on brokers whose pool of lenders is overly limited.
Advisers have remarked on the volume of criteria changes in the later life, self-employed and buy-to-let segments — as well as a plethora of product updates across the market.
Double, triple check
Adrian Anderson, director at broker Anderson Harris, says it “certainly feels as if banks do seem to be forever changing criteria”, and that there has been a “relaxation of lending criteria on interest-only, with some banks being a bit more flexible on allowing older borrowers.”
He says that it’s “always a challenge for brokers to keep up with criteria which is why we want to speak with our lender relationship manager regularly, why business development managers (BDMs) from lenders often come to see intermediaries and why we read regular updates in the press and from lenders.”
Anderson is confident that brokers can keep up to date with marketplace churn if they research thoroughly, but says “it’s always at the forefront of our minds to make sure that the client is getting the best terms, based on their criteria.
“If someone wants a particular loan size, for a particular value or property, we always do our research, look at the cheapest lender and work our way down.
“Brokers double, triple check criteria with their relationship manager at the bank, or they’ll get their assistant to double check the research online, to make sure that we’re definitely going to the right lender for the right client,” Anderson says.
Lender policy visibility
On the research platform side, Mark Lofthouse, chief executive at mortgage technology and data company Mortgage Brain, suggests that the apparent high level of criteria changes has to do with the rising visibility of lender policies and product features over the past few years.
“It’s not so much that lenders are constantly changing their criteria, it’s more that criteria, over the past two or three years, have become more important to matching a customer to the products available,” Lofthouse says.
“If you go back, historically you were either a vanilla product or you were specialist. And that was it. Whereas now, criteria that lenders may always have had are available to brokers through platforms like Criteria Hub. Brokers are using them more, so there’s more visibility compared to in the past.”
Jason Hegarty, co-founder at Criteria Hub, which was acquired by Mortgage Brain in March, adds that this enhanced visibility across the mortgage marketplace has enabled brokers to transact more easily with a wider range of niche lenders.
“Brokers now have access to more lenders who accept, for example, borrowers who have been self-employed for only a year. We provide criteria from 10 or more lenders who accept self-employed borrowers of this type. That’s considered pretty niche, but yet there are a vast array of solutions available,” Hegarty says.
He adds that certain lenders may have relaxed their affordability algorithms in selected market segments during 2019, giving an impression that customers can borrow more.
And criteria platforms have contributed to standardising the language of lending so that it’s easier for lenders to communicate changes to intermediaries and to benchmark their criteria to see where they may be outliers in a particular market segment.
BTL criteria churn
As well as clues that lenders are tweaking criteria for older borrowers and the self-employed in response to changing work patterns, there is evidence that they’ve been tinkering with buy-to-let (BTL) criteria too, with taxation rules the driver.
Liz Syms, chief executive at Connect for Intermediaries (pictured), says that in this segment, criteria has become a key battle ground for rival lenders who may be restricted as to how low they can cut rates.
“BTL is dominated by the big high street names, which take a very significant share of the market. The remainder of lenders, of which there are many, and lots of new ones coming into the market, collectively are trying to get a share of that smaller part that’s left over after the high street has taken its bit,” Syms says.
“There’s a lot of competition between lenders. When their margins are too tight to compete against the high street on price, they tweak and improve criteria.
“That is one reason that you’re seeing such a change in criteria. For brokers, in terms of more choice, it’s the real bonus,” Syms adds.
Research, research, research
She points particularly to holiday let and Airbnb mortgages, where a lot of smaller building societies and bigger specialist lenders have brought out new products and tweaked criteria.
“That’s off the back of consumer demand because with tax changes, where mortgage interest is not deductible in full for higher rate tax payers, holiday lets or Airbnb, if run as a business, are not counted as BTL — even if held in someone’s name,” Syms continues.
“It’s treated as a commercial business for tax purposes and therefore mortgage payments can be offset against income before paying tax. That has increased the popularity of, and demand for, that type of product.”
She adds that a similar dynamic is at play in the segment for homes in multiple occupancy (HMO) products.
However from an adviser perspective, “it’s a lot of lenders and a lot of criteria to try to understand and navigate through, to make sure you are making the right recommendation to a client,” Syms says.
While the pros are about more choice for clients, the cons come in the form of brokers having to be extra careful about giving the right advice.
“There are more products and criteria than ever, even compared to before the credit crunch, and that creates a lot of work and a lot of pressure for advisers to fully research the market accurately. Brokers need to spread their wings and spend time with lenders to properly understand their offerings, because not everything is black and white,” Syms says.
While there is “no one system that does everything”, it’s beneficial to check criteria and then to research a shortlist within the sourcing system.
“There’s a risk that if brokers don’t open their minds to alternative lenders out there and research only from a narrow number of known lenders, they may be missing opportunities or making the incorrect recommendation,” she adds.
Lea Karasavvas, managing director of Prolific Mortgage Finance, agrees that overall the level of criteria churn has been positive for clients and for the health of the mortgage market, but that it does keep brokers on their toes.
“Criteria changes are the nature of the beast in the mortgage market, but we are seeing a lot of changes at present as lenders look to assist in many areas where they were struggling previously,” he says.
“There have been huge criteria changes in maximum ages on mortgage terms, with many lenders now going to age 80 and even 85 which assists older clients. These changes have been very positive, with people living longer and working longer.
“More changes in interest-only criteria continue to strengthen the market place and have also given people more options on how their debt is repaid,” he adds.
However, Karasavvas highlights that the biggest and most problematic change has been within the BTL sector “where it seems every day a different stress test is applied by a new lender”.
“The number of changes have become so frequent that many networks are now rolling out specialist licenses for brokers to transact in this field to ensure that they are on top of all the changes they continue to give best advice,” he says.
Despite the challenge to brokers from such a level of churn, Karasavvas concludes that “the majority of recent criteria changes have helped brokers to give a lot more options to borrowers and should be applauded.
“Lenders continue to be keen to lend, and while these changes are frequent, the majority are enabling us, as advisers, to perform our roles better.”
Mortgage Intelligence offers Criteria Hub alongside Mortgage Brain
As part of the agreement, the advisers will be able to use Criteria Hub alongside Mortgage Brain’s online and offline sourcing systems, and The Key, its point of sale and client relationship management system, as part of a complete, end-to-end mortgage sourcing solution.
The software has been enhanced to offer a unique way of highlighting any of their client’s multiple selection options that are critical or deal breaker.
Sally Laker, managing director at Mortgage Intelligence, said: “We’ve had a really strong relationship with Mortgage Brain over a number of years and this new addition to its proposition demonstrates its understanding and vision in the mortgage advice market.
“Like us, Mortgage Brain is committed to driving forward technology initiatives and solutions that deliver business benefits that make a real difference to mortgage advisers, lenders and customers alike.”
Mark Lofthouse, CEO of Mortgage Brain, said: “To receive the continuous endorsement from a company such as Mortgage Intelligence is testament, not only to our ability to deliver the best and most innovative systems proposition available, but the unrivalled levels of flexibility, adaptability and responsiveness that we offer to all of our partners.
“We’re incredibly proud of our position as the mortgage sourcing partner of choice with Mortgage Intelligence and were looking forward to continuing to work with them and their advisers as part of this new venture.”
Over 3,000 advisers are actively using Criteria Hub including Countrywide, The Right Mortgage & Protection Network, John Charcol, Mortgage Force, Mortgage Intelligence, Fluent Money for Advisers, Online Mortgage Advisor, Openwork, Tenet, TMA, and numerous smaller firms.