A guide to mortgages for Airbnbs

There’s nothing new about the holiday letting market. What is relatively new is Airbnb, a name that most people would recognise. It has had a huge impact on the holiday letting industry and many individuals have decided to ride the Airbnb wave, renting out their own property or buying properties to rent out on Airbnb as they can often yield a higher return than traditional renting.

So, let’s look at what Airbnb is all about, what you need to be aware of including the implications for your mortgage.

What is an Airbnb?

An ‘Airbnb’ is a rental property that a landlord advertises on the Airbnb platform. The Airbnb platform provides a link between the owner of an Airbnb and holidaymakers who prefer to be in their own space rather than book a hotel.

The Airbnb concept has been incredibly popular, as it offers a huge variety of properties however quirky, earthy, swanky and glamorous and everything in between. They can be tucked away in the remotest of locations or right in the heart of city centre action.

Can you Airbnb on a residential mortgage?

If you are planning to rent out your existing property on Airbnb, and you already have a residential mortgage on that property, then you may be able to rent out your property without changing your mortgage BUT this is dependent on the terms and conditions of your mortgage.

A lot of mortgages have clauses that prohibit you from earning income from a short-term let or Airbnb so you must check your terms and get your mortgage lender’s approval before you rent your property. If you don’t, violating your terms and conditions could lead to legal action or it could, in the worst-case scenario, result in foreclosure.

These restrictions may apply whether you are still living in the property and renting out a spare room on Airbnb, or if you aren’t living there, as the key factor is that you would be earning income from the rental arrangement.

Why do I need a specialist mortgage for Airbnb?

Whenever your mortgage requirements are for anything other than a residential property, you’ll generally need a specialist mortgage to cover the different requirements of this kind of arrangement.

If you’re only planning to rent out a room within the home you’re continuing to live in, it’s worth talking to your lender, as some have a flexible attitude to allowing occasional single-room renting.

We strongly advise you never to rent a room without getting permission from your mortgage lender first. Doing so would be a breach in your contract and could lead to you having your home repossessed.

The benefits of being an Airbnb landlord

An obvious benefit is the potential opportunity for income. It’s also worth noting that, as Airbnb is classified as a business, not a buy-to-let, it sits outside of the usual tax rules which means that you can offset the mortgage interest.

Depending on your tax situation, you may also be able to deduct tax from the mortgage payments you make on the property you rent out via Airbnb, as well as your insurance payments, any rental commissions and your cleaning costs.

Speaking to an experienced financial adviser, like the team at PIL Southampton, can advise you on how being an Airbnb landlord could affect your personal tax position.

We would also recommend that you speak with your accountant, to ensure that you are meeting the applicable conditions regarding any tax deductions.

Things to consider when renting your UK property through Airbnb

As attractive as the benefits may seem, it is always prudent to consider the whole picture. 

If you are planning to permanently rent out an entire property for short-term lets, it can be difficult to find a lender, though it’s not impossible. Another option could be to rent out part of your home as short-term lets. On this basis, some lenders may allow you to take out a standard residential mortgage, but it’s not particularly common.

Letting out more than one room as a short-term let would probably mean that you wouldn’t be eligible for a standard residential mortgage, but other mortgage options would be available to you.

Another option is to rent out your whole property for a certain period of time. Some lenders would allow this within your existing standard mortgage, but they’re likely to stipulate a maximum time limit which would usually be three months per year.

Why do lenders charge higher mortgage rates on Airbnbs?

The reason that lenders charge higher mortgage rates on properties being rented out on Airbnb is because most short-term rental properties – whether Airbnb or not – are higher risk.

They are higher risk for several reasons. Firstly, holiday lets have more unpredictable income as you can never be sure what bookings you’re going to get, and income can fluctuate seasonally, too, all of which could make the landlord more vulnerable when it comes to finding the monthly mortgage repayments.

Also, mortgage lenders take into account that having more people coming and going could increase general wear and tear, accelerating the potential for the property losing value through the years.

Other factors that influence mortgage lenders’ charging higher rates include concerns about profitability owing to a high number of other Airbnb properties in the same area resulting in a saturated market; this could reduce the potential yield. Some local councils are levying taxes and limitations on Airbnb properties which could also reduce their profitability.

Do I need a buy-to-let mortgage to list my property on Airbnb?

A buy-to-let mortgage may seem like a favourable option, as they often have lower rates than a holiday let mortgage, but buy-to-let mortgages are generally associated with longer-term lets, and you wouldn’t be allowed to live in the property.

This would be a deal breaker for many individuals who rent out their primary residence on Airbnb, like the people who temporarily vacate their home when they get bookings – making money when they’re away on holiday, for example.

Can you use Airbnb income to qualify for a mortgage?

This is an option with some mortgage lenders but, when they are evaluating your ability to meet your mortgage payments, your lender is likely to want to see proof of reliable rental income from your Airbnb if you want it to be taken into account. This proof could be rental receipts or bank statements. 

It’s worth bearing in mind, though, that not all lenders will accept Airbnb income as part of a mortgage application so make sure you cover this off before you waste your time progressing an application with a lender that is likely to decline your mortgage application.

How PIL Southampton can help you 

Our experienced, expert and friendly team of financial advisers at PIL Southampton regularly help and support their clients with mortgages for Airbnb properties and we would be very happy to guide you through the process too.

How you can contact PIL Southampton

You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.