Understanding Airbnb Mortgages: A Guide to Financing Your Short-Term Rental Property
With the rise of platforms like Airbnb, more property owners and investors are exploring the potential lucrative opportunities offered by short-term rentals.
However, financing an Airbnb property isn’t as straightforward as securing a standard mortgage.
Whether you’re considering purchasing a property specifically for Airbnb or looking to convert your current home into a short-term rental, understanding Airbnb mortgages is crucial.
At Kerr & Watson, we specialise in providing tailored mortgage advice, ensuring that you find the best financing option for your unique situation.
We can guide you through the essentials of Airbnb mortgages, the types of mortgages available, and what you need to know to make informed decisions.
What is an Airbnb Mortgage?
An Airbnb mortgage is a type of financing designed specifically for properties that will be rented out on short-term rental platforms like Airbnb. These will likely come under the heading of ‘Holiday Let Mortgages’ or ‘Serviced Accommodation Mortgages‘ from lenders that do not discount applications where Airbnb is going to be used to source the guests to the property.
These mortgages are a subset of buy-to-let mortgages but come with distinct terms and conditions due to the unique nature of short-term rentals.
Unlike traditional buy-to-let properties, which are typically rented out on a long-term basis, Airbnb properties are rented for shorter periods, often attracting higher rental income. However, this also introduces higher risks for lenders, such as inconsistent income streams and increased wear and tear on the property with guests coming and going constantly.
Why Do You Need a Specialist Mortgage for Airbnb?
When you rent out a property through Airbnb, it transitions from being purely residential to a commercial use for holiday letting. This change requires a different type of mortgage than what you’d need for a primary residence or a standard buy-to-let property. Here’s why:
Lender Requirements
Most standard residential mortgage agreements prohibit short-term letting without prior consent. Failing to inform your lender about your plans could breach your mortgage terms, potentially leading to severe consequences such as the recall of the loan.
Higher Risk
From the lender’s perspective, short-term rentals carry higher risks. This includes fluctuating income, seasonal demand, and the potential for more frequent property maintenance. Consequently, Airbnb mortgages often come with higher interest rates and stricter lending criteria than standard buy to let mortgages.
Compliance
Mortgage providers require assurance that the property will generate sufficient income to cover the mortgage payments, even during periods of low occupancy. Specialist lenders are more equipped to assess and accommodate these unique factors.
Find out Your Options
Types of Airbnb Mortgages
The type of mortgage you need depends on how you plan to use the property. Here are the most common scenarios:
Occasional Short-Term Letting
If you occasionally rent out a room or your entire property on Airbnb, you might not need a specialist mortgage. Many lenders can be flexible with infrequent short-term lets, especially if it’s your primary residence. However, it’s crucial to inform your lender to get permission to avoid any contractual issues.
Potential Suitable Mortgages:
- Residential Mortgage
- Second Home Mortgage
Always check with the lender or get professional advice.
Full-Time Airbnb Letting
If you intend to rent out your property on Airbnb on a full-time basis, you’ll likely need a holiday let mortgage. This type of mortgage is tailored for properties that are primarily used as short-term rentals. Lenders offering holiday let mortgages understand the business model of Airbnb and can provide terms that reflect the nature of the rental income.
Suitable Mortgage:
- Holiday Let Mortgage
Converting a Buy-to-Let Property
If you currently have a buy-to-let mortgage and want to switch to Airbnb letting, you will need to consult with your lender. Some buy-to-let lenders may allow the transition, but many require you to remortgage into a holiday let mortgage.
Action Required:
- Seek lender consent or remortgage to a holiday let mortgage.
What to Consider Before Applying for an Airbnb Mortgage
Securing an Airbnb mortgage requires planning and consideration of several factors:
Income Projections and Affordability
Lenders will assess your income projections from Airbnb letting. It’s important to present a realistic and well-researched income estimate, taking into account potential vacancies and seasonal variations. This will also allow you to be sure that the investment works for you so you are not rushing in without a plan.
Deposit Requirements
Airbnb mortgages often require a larger deposit compared to standard mortgages. Typically, you might need at least a 25% deposit, reflecting the higher risk associated with short-term rentals. A mortgage adviser will be able to give you a clearer idea based on your situation.
Interest Rates and Fees
Higher interest rates and fees are often the outcome with an Airbnb mortgage compared to a standard residential or buy to let mortgage. Specialist lenders offer these products with a full understanding of the risks involved, and their rates may reflect this.
Impact on Your Current Mortgage
If you’re converting your current property to an Airbnb, you must inform your lender and possibly switch mortgage products.
This could involve additional costs, including early repayment charges, arrangement fees for a new mortgage, legal and broker fees.
Tax Implications
Short-term rentals like Airbnb are treated differently from traditional buy-to-let properties in terms of tax. You may benefit from certain tax deductions, such as mortgage interest and maintenance costs. Consulting with a property tax advisor is essential to maximise your tax efficiency and to make sure you are doing everything properly.
Conclusion
Airbnb mortgages can be a great opportunity for property investors looking to maximise their returns through short-term rentals.
However, these mortgages requires expert guidance to ensure you secure the best terms and avoid potential pitfalls.
At Kerr & Watson, we are committed to helping you achieve your property investment goals. Whether you’re a first-time Airbnb host or a seasoned investor, our mortgage experts are here to provide tailored advice and support throughout the process. Contact us today to explore your options.
