Renting out your home or buy to let property on Airbnb could land you in hot water with your mortgage lender
Some of our recent articles have highlighted important issues that need to be considered when you list your home for rent on Airbnb. Including the new '90 night annual limit for London hosts' and the importance of checking your lease before you list your property on the site.
In this final part of our Airbnb trilogy, we cover what mortgage lenders think of the growing practice of using websites like Airbnb.
There is no denying the meteoric rise in popularity of sites such as Airbnb which allows homeowners to offer their homes for rent to paying guests for short periods of time. This looks set to continue, supported by last April’s budget announcement that the first £1,000 of income earned this way will be tax free from April 2017. A veritable carrot.
And here is one of the sticks: many people who do this could find themselves in serious trouble with their mortgage lender.
Without any consent from your mortgage lender, any short term letting via Airbnb or similar sites is likely to be in breach of the terms of your mortgage contract. Read the small print.
Your home and a residential mortgage
If you have a residential mortgage, there is normally a clause preventing any letting of your property without prior consent. If asked, most lenders would either say no or may consider granting consent – for a fee, of course.
A limited number of lenders have recently reviewed their policies and so some newer mortgage contracts may allow Airbnb lettings: Metro Bank allow up to 90 days a year without consent and Market Harborough Building Society will agree to up to 24 weeks provided consent is obtained.
Your buy to let property
The general view is that this is a big no no. This seems a bit at odds when some buy to let mortgage contracts allow for holiday lettings but there you have it.
How will they know?
It might seem tempting to ignore this: either by just not approaching your lender for consent or going ahead anyway even if they say no. After all, how can they find out? All lenders have internal monitoring teams who can carry out checks to see if properties are advertised on Airbnb and other sites.
Take particular care if you apply for a remortgage: these checks are much more likely to be carried out. Lenders will also be able to identify Airbnb income from bank statements.
Surely lenders have better things to do? Maybe. We wouldn’t advise taking the risk though.
So what are the risks?
You could be hit with a one off fee or face an increased mortgage rate. Worst case scenario, your mortgage lender could seek immediate repayment of your total mortgage, although the former is more likely.
Why are lenders so concerned?
A lender has carried out a detailed risk assessment on you and on the property when giving you the mortgage. Mortgage products are based on a careful assessment of risk, including cash flow, the risk of default, the level and reliability of income and any risks associated with how the property is to be used. If the mortgage is then used in a different way, the risks for the lender may be different.
What if you expect to fund your mortgage payments through lettings that don’t materialise and find yourself struggling to make your monthly payments? What if your seemingly charming Airbnb visitors end up trashing your property? A lender will not be happy if the value of the property is significantly reduced overnight.
And there’s more: what will your insurer think?
Your lender won’t be the only one who is unimpressed. Your buildings and contents insurance could be invalidated if you have not informed your insurer in advance. Not having valid buildings insurance is also another breach of your mortgage contract. It’s all very messy now, isn’t it? Still worth the risk?
Is there any good news?
Lenders are aware of the increasing popularity of this type of letting. Many are reviewing their lending policy to consider how far they are proposed to go. Metro Bank only changed their policy in November 2016 so hopefully others will follow suit and start to keep up with the times. For now, though, you have been warned!