Why are lenders reluctant to accept Airbnb-style lets?
The growth in staycations and increase in demand for short-term accommodation has also been fuelled by the likes of internet platforms such as Airbnb.
While mortgage lenders naturally welcome money-making property investments, a holiday let mortgage can prove somewhat more difficult to find. Some lenders have fought shy of lending for property intended for letting on the short-term basis akin to Airbnb arrangements. A so-called Airbnb mortgage, therefore, might be especially difficult to secure.
Lenders’ reluctance stems from the following considerations:
- because a lot more, different people are going to have access to the property for short stays, there is a greater risk of loss or damage to either the structure and fabric of the building, its contents, or both;
- it’s in the nature of a holiday let – typically seasonal – that voids are longer and more frequent;
- some of the accommodation platforms such as Airbnb have gained a poor reputation for hosting difficult, rowdy, or disorderly tenants including stag and hen parties – or worse.
For reasons such as these many lenders will require that any let property – including holiday lets – are let on the basis of an assured shorthold tenancy (AST). The minimum duration for any assured shorthold tenancy is six months and that period cannot be made up of successive short-term lets – effectively ruling out any Airbnb-style business.
Can I get a short-term let mortgage?
Although we have given the reasons why some lenders fight shy of lending for holiday or short-term let property, the market will out. Investors recognise the lucrative potential of short-term holiday lets and, so, there are lenders more than willing to advance holiday let mortgages – by no means all mortgage lenders are averse to lending for such purposes.
If the primary market for the buy to let property you intend to purchase is short-term or holiday lets via Airbnb or any similar platform, therefore, you will want to identify the increasing number of mortgage lenders now prepared to advance loans against the security of such property.
For help in finding those specialist short-term let mortgage lenders and for assistance in making and securing your mortgage application, you might want to consult an experienced mortgage broker with expertise in this growth area.
How much deposit will I need for a short-term mortgage?
Just as with any mortgage, you’ll need to contribute a deposit. It shows the lender that you are serious about purchasing the property.
But a deposit also gives the lender an element of reassurance in the event of you defaulting on repayment of the loan and, in the meantime, its value has taken a hit. If you have paid a deposit of 15%, for example, the lender can take comfort from the fact that the value of the property can have dropped by as much as 15% and they will still be able to recover the full amount of the mortgage advance.
This helps to illustrate the fact that there is a link between the amount of deposit you may need for any particular type of mortgage and the lender’s assessment of risk. The lender will look carefully at the size of any mortgage advance in proportion to the value of the property – the so-called loan to value (LTV) ratio of the mortgage.
The lower the LTV, the bigger the deposit you have put down, the greater share of the property you already own and the less risk that is taken on by the mortgage lender.
In this context, a mortgage on a short-term holiday let property will be considered a higher risk than the standard residential mortgage offered to an owner-occupier. While the latter might be offered a mortgage with an LTV as high as 95% (you only need a deposit to cover the remaining 5% of the purchase price), if you are looking for a holiday short-term let mortgage the LTV might be as low as 70% to 75%. In other words, the greater risk to the lender of a mortgage for a short-term let property means that you are likely to need a deposit of between 25% and 30%.
What else do I need to consider with a short-term let?
Even if you are successful in raising a mortgage on your holiday let property, remember to check that the freehold is free of any covenants that might prevent its use for short-term lets.
You might also want to confirm the absence of local authority planning restrictions or other regulations that limit your use of the property for short-term lets. In order to protect longer-term rented accommodation for local residents, for example, in London there is the so-called “90-day rule”. This limits short-term lets of any one property to a maximum of just 90 days a year.
Next steps – Short Term Let Mortgage
Although many property investors have recognised the potential of dwellings used for short-term holiday lets, you might want to do your homework thoroughly before making a purchase.
Specialist holiday let mortgages – even Airbnb mortgages – are available but be prepared to find a bigger than usual deposit that will typically represent between 25% and 30% of the purchase price.
Before taking the plunge and making such an investment you might want to consult an experienced broker with expertise in this niche of the mortgage market – such as us here at NeedingAdvice.co.uk.
FAQs- Short Term Let Mortgage
Can I use the property myself?
This loan is based on the value of the property being sold. You need to make sure you understand how much equity you have in the property. There may be tax implications as well. Your accountant should help you out with this.
What is short-term lending?
A typical residential mortgage lasts for up to 40 years, but our short-term mortgage loans last for up to 2 years. This makes them ideal solutions for buying a new home, as well as for those who want to buy their next home at auction.
How does short-term lending differ from a bridging loan?
Short term mortgages are similar to bridging loans. There is one difference that bridging loans could be more expensive as compared to short term mortgages. Bridging loans can be paid off within 12 months whereas short term mortgages can be repaid over a period of two years.
How long do short-term mortgages last?
A short term let mortgage lasts for usually 12 months duration. The interest rate charged by lenders varies depending on the amount borrowed. Typically, a short term let mortgage has a fixed rate of interest which is lower than the variable rates associated with most residential mortgages.
Is it possible to get a mortgage for a short term let?
Yes, it is possible to get a short term let mortgage. However, you will need to meet certain criteria. For instance, you must be able to show proof of income and assets. If you are self-employed, you will need to provide details of your business. A good credit score is important too.
Are there any benefits to getting a short term let mortgage?
There are several reasons why people choose to take out short term let mortgages. One reason is that they want to avoid paying high stamp duty when purchasing a property. Another reason is that they want the flexibility to move into another property if needed. Finally, some people prefer to keep their finances separate from their main residence. They don’t want their mortgage payments to affect their overall financial situation.
What percentage of rental income can be used for mortgage?
You can use up to 80% of the gross rent received to repay the mortgage.
Who can apply for a short term let mortgage loan?
The lender will require evidence of sufficient funds to cover the cost of the property. In addition, the borrower needs to prove his/her ability to pay back the money.