What Mortgage Do You Need for an Airbnb?

Written on 7 August 2020 by Robyn Clark

airbnb mortgage

It’s easy to see why Airbnb has exploded in popularity. It’s great for travellers because it’s flexible, cheap and – more often than not – you end staying somewhere that’s still pretty nice, despite the fact it costs less than a hotel.

With such a demand for cheap, short-term stay, setting up an Airbnb can also be extremely lucrative. But, how exactly do you set up an Airbnb? And what kind of mortgage would you need?

Setting Up Your Airbnb

Registering a property on Airbnb is rather straightforward: you simply sign up to their website and list your property for free. This side of things is easy.

It’s a little more complicated if you have a mortgage on the property you want to let out. Sure, you can still register, but you’ll likely be in violation of your mortgage contract. We explain more about this a little later on.

Mortgages for New Airbnb Properties

Unless you have the savings to buy a second residence outright, you’ll probably need a mortgage.

If you want to purchase a new property and:

  • Let out the whole property on a permanent basis on short-term lets

It’ll be hard to find a lender who offers a mortgage specifically for this purpose. However, some lenders have products for holiday lets or a short-term letting range.

  • Part-let the residence on short-term lets

You may find a lender who will offer a residential mortgage at a normal rate, but these are quite rare. Expected rental income would also be ignored in the affordability assessment.

  • Let out the whole residence for a limited period on short-term lets

Some lenders will offer you a residential mortgage at a normal rate, but they will also likely stipulate a maximum period – usually around 3 months – that you could let out the property. Again, rental income would be ignored in the affordability assessment.

  • Let out more than one room on short-term lets

You’ll likely find yourself outside of the criteria for a residential mortgage lender and would instead have to pursue another kind of mortgage, possibly commercial – like one you’d have for a standard B&B property.

How Do You Let Out a Property You Already Own?

If you already have a mortgage on a property but want to let it out, you’ll have to check with your lender. You could apply for a “consent to let”. This is where your lender allows you to let out your property but also remain on your existing mortgage. Even if they do grant you permission, you may face higher interest rates or additional fees.

A lot of lenders won’t allow letting at all, never mind the short-term lets synonymous with Airbnb. If you’re not granted permission, but you’re set on letting out your property in this way, then you may have to remortgage. Bear in mind that you may face an early repayment charge if you remortgage early.

If you own a property outright, with no mortgage remaining on it, then you can let it out how you choose. However, you’ll have to meet certain criteria as a landlord and check your home insurance policy to make sure you’re covered. You may need to contact your insurance provider.

If you own a leasehold, then it’s likely letting out your property may violate the terms of your lease. Check with your freeholder before signing up to Airbnb.

Why Don’t Lenders Like Airbnb?

A lot of lenders stay away from short-term lets, like Airbnb, because the guest turnover is much higher – consequently so is the risk. You’re likely to have a greater variation in guests, some of whom will take better care of the property than others.

Penalties for Violating Your Mortgage Contract

Letting out your property as an Airbnb without explicit permission from your lender can have serious consequences. Your lender could demand that you immediately repay your mortgage in full – but this would be extreme. It is likely, however, that your lender would raise your rate or demand a fee.

You could also face issues with your insurance provider. If you let out your property – and the nature of the lettings isn’t covered by your policy, you may put your home at risk. Always check with your home insurance provider before letting out your property. You may need to find a more suitable policy.

How Do You Find These Mortgages?

You can do some independent research and approach lenders yourself, or you can use a mortgage broker.

At John Charcol, we’re known for specialising in complex and unusual cases – and finding a mortgage for an Airbnb property certainly isn’t straightforward! Most lenders won’t even entertain the idea of short-term letting! You’ve also got to find the right insurance for your property.

We can help you arrange all of this. Call us on 0330 433 2927 to speak to an adviser about your situation or send us an enquiry.

Categories: Buy-to-Let Mortgages, Robyn Clark

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