The internet has revolutionised the way people make income and the rental market is no exception.
With the rise of sites like Airbnb, landlords are finding it easier than ever to let out their property.
But how easy is it to get a mortgage for a property that you want to let on Airbnb?
Do mortgage lenders even allow you to use the site?
This guide looks at Airbnb mortgages specifically and breaks down all the important factors you need to consider.
Let’s dive in.
What is Airbnb?
Airbnb is an online marketplace that allows you to rent out your property to other people.
The focus is primarily on travellers and many people who use Airbnb will look to stay in a property for a short period of time before moving on.
In many ways, Airbnb is comparable to websites like Booking.com and Hotels.com but with a focus on rental properties instead of hotel accommodation.
Travellers (or potential renters) input the dates and location for the place they want to stay, and Airbnb returns results of available properties that match the search.
The property you can rent on Airbnb range from single rooms to entire mansion complexes (and everything in between).
The idea is that no matter what your budget is, you will be able to find a property to stay in that meets your travel requirements.
Can I Get a Mortgage for an Airbnb Property?
You may be wondering how this kind of arrangement works if you want to get a mortgage on a property specifically to be used on Airbnb.
The truth is, it is often a quite complicated process because sites like Airbnb don’t guarantee rental income in the same way a traditional tenancy agreement would.
However complex, there are ways of getting a mortgage and subsequently using Airbnb for additional income.
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Key Considerations for Mortgages on Airbnb Properties
Let’s first look at the complexities around Airbnb properties and then explore some of the mortgage options available.
How Long Are You Planning to Use Airbnb?
If you use Airbnb, you can adjust how long your property is available or even whether or not it shows in search results at any given time.
If you’re only planning to use Airbnb intermittently then this can cause problems on a Buy to Let mortgage.
With a Buy to Let you will need to show anticipated rental income that exceeds the mortgage payment.
To be granted the mortgage, you will need to demonstrate to the lender that the property is capable of achieving that rental value by using comparable rental properties in the area.
Airbnb doesn’t always equate to a standard rental income and oftentimes properties can be let out on the site below market rate.
You will also need to factor in that if you fail to rent the property on Airbnb then you will still need to meet the mortgage payment obligation.
This will be effectively lost money as there will be no rental income to recoup against the cost of the mortgage and you will likely only be paying the interest on the mortgage if using a Buy to Let.
To summarise, if you’re using Airbnb exclusively for rental income, it has a few risks, and you should compare it to a traditional rental before committing to using Airbnb alone – especially on a Buy to Let mortgage.
Are You Looking to Rent Out a Room or the Entire Property?
The type of mortgage you will need will depend on how you plan to use the Airbnb website.
For example, if you’re planning to let out the entire property then a residential mortgage will be out of the question.
This is because residential mortgages require you to be a resident at the property.
If you are planning to rent out a room on Airbnb, then a residential mortgage may be applicable.
You will still need to reside at the property and the room would likely need to be let out on a ‘lodger’ basis.
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What Types of Mortgage Are Available on an Airbnb Property?
There are three types of mortgage that can be applicable if you’re looking to rent out on Airbnb.
The type of mortgage you can use will depend entirely on the factors we mentioned above and with Airbnb some mortgages will be excluded depending on your usage.
Residential mortgages allow you to buy a property you intend to live in.
The mortgage payments will cover both the capital and interest on the mortgage.
Over time (with mortgage payments) you should accumulate equity in the property and by the end of the mortgage, providing you have made your payments, you will own the property outright.
These mortgages aren’t suitable if you’re looking to rent out the entire property.
Lenders are loath to provide consent to let on existing residential mortgages and will decline a mortgage application if you’re intending to rent out the property instead of using it as a residence.
With many lenders though, you’re able to rent out a single room within the property or take on a lodger without it affecting the mortgage.
This can be helpful if you intend to use Airbnb and make a little extra income.
This extra income will not be taken into account for affordability purposes so you will need to show you can afford the entire mortgage payment without the potential lodger income.
You should factor in that Airbnb is a competitive marketplace and in order to let out a room there, you will need to ensure your pricing remains competitive over time.
This means you shouldn’t budget a fixed amount of income for renting out a room on Airbnb as you will likely need to adjust your rates over time.
Buy to Let Mortgages
If you’re planning on renting out the entire property on Airbnb, you will not be able to get a residential mortgage – instead you will need to get a Buy to Let mortgage or a commercial mortgage (see below).
A Buy to Let mortgage is typically an interest only mortgage where you pay the lender the interest each month.
Unless you make additional payments on the mortgage to pay the capital you will not own the property at the end of the mortgage.
Lenders have revised their terms for lending on a Buy to Let basis over the last 10 years and you now need to show that the rental income you will receive is higher than the payment on the mortgage.
To do this, lenders will stipulate a percentage difference between the amount you take in rent and the amount you pay on the mortgage.
This helps them mitigate risk when lending money on a Buy to Let basis as the additional income will act as a buffer for you if the property is vacant for any period of time during the mortgage.
A lender will scrutinise any Airbnb plans you have heavily when it comes to a Buy to Let mortgage as they won’t see it as a stable rental income.
This is because people that use Airbnb can be transient and may only require the property for short periods of time.
If you’re looking to buy a holiday let property as a commercial enterprise, then the best way to do this can be by using a commercial mortgage.
Commercial mortgages can be ideal if you’re intending to run a holiday business exclusively.
These mortgages are unregulated, and you will need to provide different types of information compared to a standard mortgage.
How to Get the Best Airbnb Mortgage Rates?
The type of interest rate you will get on a mortgage will differ depending on the type of mortgage you apply for.
Residential mortgages can have the lowest rates when compared to other mortgage products as lenders see them as less risky overall.
Lenders tend to assume that there is a lower likelihood of mortgage default on a residential compared to buy to let mortgage.
This is because with residential mortgages, the lender understands the income and financial commitment profile of the borrower.
Whereas, with buy to let mortgages, lenders often rely on third-parties (tenants) to pay the rent which ultimately pays the mortgage payments.
There are however the abovementioned restrictions on a residential mortgage that might make them unsuitable for Airbnb usage.
Buy to Let mortgages can have higher interest rates to reflect the risk of you not being able to monitor the property as closely as if you lived there.
Commercial mortgages can have the highest rates overall.
It is important to note here that interest payments on the mortgage can be offset against your business tax liability in most cases.
For more detailed information around mortgages and taxation on a commercial basis you should consult with an accountant who will be able to advise you specific to your circumstances.
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Some lenders have strict property requirements and if you’re buying a property that falls outside of standard property criteria you may find the options you have for a mortgage are limited.
Typically, lenders like properties that are of standard construction (brick with a slate/tile roof).
Listed buildings and properties of unusual construction may require a specialist lender or at the least a more flexible lender.
These lenders may offer higher interest rates compared to standard mortgage lenders.
For Residential and Buy to Let mortgages you will need to pass a credit check.
Lenders assess how risky the mortgage is by weighing up the loan sum against several factors including your credit score.
The general rule is if your credit score is high, you’re considered a lower risk for a mortgage, and the interest payment will be lower to reflect that.
If your credit score is low, the lender may assess you as an ‘adverse’ or higher risk which can be reflected by higher interest rates.
You should check your credit score before applying for a mortgage and ensure it is accurate and up to date.
Commercial mortgage providers may or may not require a credit score to be completed.
Sometimes they are concerned by the creditworthiness of directors and other times they are only concerned with the health of the company accounts.
In most cases with a commercial mortgage, lenders ask for what’s known as a director’s guarantee.
A director’s guarantee means that in the event the company fails you commit to the mortgage obligation personally – this can involve putting your personal property up as collateral against the mortgage.
Deposit Amount (Loan to Value)
Once again, depending on the type of mortgage product you’re using you will have differing deposit requirements.
Residential mortgages are the most generous when it comes to how much you need to put down as a deposit.
Typically, you will need to put down 10% of the property value, but some lenders allow you to put down 5% as a deposit.
You might also want to consider an offset mortgage which is sometimes considered a 0% deposit mortgage – this mortgage works by you opening a savings account with a percentage of the property value saved to offset against the mortgage.
Buy to Let mortgages typically require you to put 25% of the property value down as a deposit to access competitive interest rates.
Commercial mortgages have different terms altogether, but it is quite common for commercial lenders to request a much higher deposit.
A 50% deposit is quite common across the commercial mortgage market.
Overall, the amount you can put down as a deposit will affect the total amount of interest you pay back over the term of the loan.
The more deposit you can put down, the less money you’re borrowing, and the interest payment will be reflected in that.
Buying a property to rent out on Airbnb is possible – but it is a complex process compared to traditional rental arrangements.
You will need to discuss your plans with a qualified mortgage broker that has access to a full range of mortgage products.
Boon Brokers is a whole of market mortgage, insurance and equity release broker.
Boon Brokers offers fee FREE, no obligation advice and we have extensive experience with rental mortgages including Airbnb mortgages.
Contact Boon Brokers for tailor-made Airbnb mortgage advice today.