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Do you need a buy-to-let mortgage for an Airbnb?
Home buying tips & advice
04 August 2021

Do you need a buy-to-let mortgage for an Airbnb?

Sam Edwards
Writer

Airbnb has taken the world by storm. Since its birth in 2008, the American company has fast become the proprietor of the world's largest online marketplace for lodgings, most of which are primarily holiday rentals. Between July 2017 and July 2018, there were nearly 223,000 active listings in the UK alone, with upwards of 8.4 million inbound guests. A typical UK host can expect to earn over £3,100 in annual earnings: more than ever, people are realising the potential in their property.

Wherever property and profit are concerned, most people rely on mortgages to get the ball rolling. So if you are considering becoming an Airbnb host to boost your income, you'll probably have some questions about the types of mortgages available.

People often get a buy-to-let mortgage for a rental property, but do Airbnb hosts have other options? Do mortgage lenders even allow Airbnb hosting?

Can you put your home on Airbnb if you have a mortgage?

In some cases mortgage-holders can put their homes on Airbnb, but this is entirely dependent on the individual lender, and the type of hosting you want to do on Airbnb.

Hosting Airbnb guests with a residential mortgage is usually only an option if you’re going to be living there too.

Even if your lender allows hosting in theory, it’s important to get in touch with them to let them know of your plans, as they may have additional conditions or requirements that you’ll have to take into account.

Do you need a buy-to-let mortgage for an Airbnb property?

If your residential mortgage provider isn’t open to the idea of an Airbnb, a buy-to-let mortgage is another potential option.

Buy-to-let mortgages are designed for people looking to let out their property on a long-term basis. If you take out a buy-to-let mortgage, you’re no longer allowed to live in the property, and it’ll now be considered to be an investment.

There are other options too, including:

  • Holiday-let mortgage

A holiday-let mortgage is designed for people who are looking to let out their property on a short-term basis as a business.

  • Remortgage to a different residential mortgage provider

Just because your mortgage provider isn’t open to your Airbnb plans, doesn’t mean other lenders won’t be.

If you’re planning on hosting guests whilst still living in the property, you could remortgage your home with a new lender.

However, before you make this decision, it’s worth noting that if you remortgage before the end of your fixed term, you will have to pay an early repayment charge, which could be up to 5% of your outstanding mortgage.

For most hopeful Airbnb hosts, a holiday-let mortgage is the best option, because:

  • They’re designed specifically for short-term lets, with repayments based on how much you expect to earn in a year.

  • You’re allowed to stay in your holiday-let property in off-seasons when you’re not renting it out.

  • As your holiday-let property is considered a business, your expenses - including the interest you pay on your mortgage - can be deducted from your income before you are assessed for tax.

Unfortunately, holiday-let mortgages are harder to find than buy-to-let mortgages. It can be difficult locating a lender willing to remortgage a property to a holiday-let mortgage, let alone borrowing to buy a new property.

While the best rates for residential mortgages start at 0.92%, the best rates for buy-to-let mortgages are higher at 1.19%, and some can only qualify for these rates with a 35% - 40% mortgage. Holiday-let mortgages are, for the most part, much more expensive with an average rate of 2-4%. Holiday-let mortgages - like buy-to-let mortgages - also require a substantial deposit, with typical deposits costing at least 25% of your home’s value. This makes them a particularly expensive investment.

A holiday-let mortgage has one advantage over a buy-to-let mortgage however, in that you’ll be able to offset interest payments against your rental income for tax purposes. This can make a holiday-let mortgage a more attractive option for potential hosts.

Another issue with buy-to-let mortgages is their mortgage applications. Though they can technically work for Airbnb hosts, there are some complications. To work out affordability, lenders will assume that your property is being rented out on a standard tenancy of 6-12 months. If you're planning on short-term letting your property for a few days rather than 6 months, you may not meet the lending criteria for a buy-to-let mortgage.

However, if you’re planning to use Airbnb to rent out property on a long term basis, a buy-to-let mortgage might work for you. Airbnb now offers monthly rentals on their platform, which can generate enough income to qualify for a buy-to-let mortgage. Just remember - there’s a restriction on the number of days you can rent out property on Airbnb in certain cities, like London. If you’re planning to rent out for long periods, you may find it’s a better option to simply advertise on the open market, rather than as a holiday rental.

Which UK lenders offer holiday-let mortgages?

While there are fewer holiday-let mortgages available than buy-to-let mortgages, that doesn’t mean there isn’t a growing demand.

While the Coronavirus pandemic devastated large swathes of the travel industry, holiday-let rental deals were only marginally hit, with just 16 less deals available today than in March 2020 where there were 162. Indeed, there are over 21 holiday-let lenders available in the UK alone, with many building societies now inclined to provide deals to fit demand.

Banks

There are currently 3 banks willing to lend holiday-let mortgages, with Metro Bank being the most established.

  • Hodge Bank
  • Castle Trust Bank
  • Metro Bank

Building societies

There are a variety of building societies that offer holiday-let mortgages, with Leeds Building Society being the most popular.

  • Leeds Building Society
  • Cumberland Building Society
  • Furness Building Society
  • Ipswich Building Society
  • Monmouthshire Building Society
  • Principality Building Society
  • Teachers Building Society
  • Vernon Building Society
  • Tipton and Coseley Building Society
  • Melton Building Society
  • Scottish Building Society
  • Mansfield Building Society
  • Bath Building Society
  • Furness Building Society

How do you choose the right mortgage?

With a variety of mortgage options available, it’s important to know how to choose the right one. The choice is a difficult one: mortgages are complex in nature and there are consequences for picking the wrong one.

Type of property

Airbnb offers hosts a choice between 3 types of accommodation to advertise through their online platforms.

Private room: When you rent out a single room in your residence. Shared room: When your guests are sharing accommodation (not as a couple) in a dormitory style situation. Whole place: When your guests have exclusive access to the property.

The type of accommodation you provide for guests will illuminate the best mortgage option for your property.

For example, in a private room scenario, you would be well-placed to remortgage with your residential mortgage. As a residential landlord, you’re allowed up to 2 lodgers before your home is classed as a House in Multiple Occupancy (HMO), which would require a license. Moreover, the government Rent a Room scheme allows you to make up to £7,500 per year from a lodger without having to pay tax on the income, or even make a declaration to HMRC. Similarly, if you offer a shared room accommodation in your place of residence, you would be within your rights to apply for a residential mortgage.

If your guests have exclusive access to a property separate to your main residences, in other words a ‘whole place’ accommodation, this could meet the requirements for either a buy-to-let or holiday-let mortgage. The deciding factor in choosing between these two mortgages is how long your guests stay - and whether you’d like to use the property for any portion of the year.

How much of the year you’re planning to have guests stay

The affordability of different types of mortgages will change depending on how much of the year you are receiving rental income, and whether you still want to ‘reside’ there (in a legal sense) for some of the year.

For example, if you are only hosting guests in the summer and winter holiday period, and wish to live in the property in off-peak seasons, a holiday-let mortgage would be ideal. However, if you have a steady supply of guests staying throughout the year, and you’re not planning on staying in the property, a buy-to-let mortgage may be more appropriate.

Whether you’re remortgaging or buying property specifically for holiday rental

The right mortgage for your property will depend on whether you’re remortgaging or buying a new property. The costs of both can vary, so ultimately the choice lies with your bank account. A new mortgage will always require an upfront deposit, and remortgaging fees, like early repayment charges, can be expensive.

What happens if I put my property on Airbnb without the lender's permission?

Your mortgage lender must always be informed of any financial gains you hope to make from your property, including Airbnb. Your property has been purchased using their money, so ultimately any profit you make is theirs to benefit from too.

If your property is found to be available on Airbnb without prior permission, there could be serious consequences. In a worst case scenario, your lender could demand a full repayment of your mortgage - if you’re unable to pay it, your home may be repossessed. Most likely however, your lender will raise your interest rate or demand a weighty fee. Either outcome is undesirable, so it’s best to be open about your Airbnb plans.

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