Airbnb hosting: beware the dangers of ignoring the mortgage smallprint

While many homeowners are tapping into the potential of Airbnb and similar platforms, it’s fair to say that traditional UK lenders are yet to catch up. For the banks, such hosting arrangements tend to be seen as ‘short term lets’ — pure and simple. It means, all too easily, borrowers can sleepwalk into a breach of their mortgage terms — with serious repercussions.

So is there such a thing as an ‘Airbnb-friendly’ mortgage arrangement? We take a look…

The irresistible pull of Airbnb

The sharing economy is big business — not least because of just how easy it is to join in. Airbnb is perhaps the best known example: sign up to the platform, take some photos, craft your blurb and you essentially have everything you need to start generating an income stream from your most valuable yet under-exploited asset — i.e. your property.

There’s certainly a strong case for declaring ‘everyone’s a winner’ with this type of arrangement. There’s the obvious profit element for the host; while for the budget-conscious traveller, it offers a compelling and affordable alternative to the standard hotel suite.

The figures speak for themselves. In Summer 2010, around 47,000 people worldwide sourced accommodation via Airbnb; fast forward six years and that number had risen to 17 million. Last year, The Independent reported that the average weekly price for London properties on the platform was £450, while the average weekly rent for regular tenants in the city was £335.

Small wonder that this model is capturing the attention not just of ‘spare roomers’, but of serious buy-to-letters, too.

What do lenders think of Airbnb?

The smallprint on the vast majority of mortgages doesn’t make for happy reading.

In the eyes of lenders, renting out your home (either in its entirety, or a single room) is regarded as a short-term let. As a rule, would-be holiday letting hosts with a standard owner-occupier mortgage will discover that they are not permitted to offer any kind of short-term lets.

So if you intend to make a go of Airbnb, then why not switch to a buy-to-let mortgage? Again, there’s bad news. Take Nationwide, for instance, who stipulate in their buy-to-let terms that “All let properties will be subject to an Assured Shorthold Tenancy agreement of a minimum of six months”. This requirement is typical across the buy-to-let market. In other words, buy-to-let mortgage lenders want you to accommodate “regular” tenants: a stream of holidaymakers is most definitely off limits.

Why not ignore the smallprint?

Firstly, here’s an obvious point that can nevertheless be easily overlooked: a property listing on a sharing platform is (by design) in the public domain. It would not generally take too much forensic work on the part of a lender’s internal monitoring team to uncover the fact that your home is available for short-term rental.

So if you decide to keep schtum — but are subsequently found out, what can you expect in the way of repercussions? Here’s what should be on your radar…

Mortgage recall

In other words, the lender seeks immediate repayment of the mortgage. Theoretically, this is a possibility (given that you are in breach of the terms). That said, it is very much the ‘nuclear option’ for any lender. It is highly unlikely to be invoked; although one possible exception could be if the breach occurs after a long history of loan default or other issues.

Loss of special deal privileges

In other words, you lose the right to continue borrowing under the deal you are currently locked into, effectively forcing you into the lender’s standard variable rate. Or you could find yourself subject to a contractual ‘unauthorised letting’ charge; either a one-off fee added to the repayment amount — or perhaps a mortgage rate increase to reflect the length of time of the unauthorised let.

National fraud database entry

Keeping quiet about an Airbnb letting might seem relatively harmless. But it is most definitely classed as fraud: namely, “Misuse of Facility Fraud” according to the Credit Industry Fraud Avoidance System (CIFAS).

Renting out your property without lender consent could result in your details being logged on the CIFAS database. Apply for financial products, credit contracts on anything from mobile phones to utilities in the future and such an entry may prove to be a significant obstacle to acceptance. It can also destroy your credit history.

And it’s not just being refused for the best loan deals that you have to worry about. CIFAS checks can form part of routine pre-employment checks, too: remembermortgage fraud can mean a black mark against you on the jobs market.

How to solve the Airbnb mortgage dilemma…

Becoming an Airbnb host while hoping to fly under the radar of your lender is fraught with danger: at best, you can expect a warning and at worst, serious financial and reputational consequences.

So what are your options? In reality, it’s a case of notifying your lender to see what permissions they are able to afford you. It’s not ideal; but that’s the reality for many homeowners.

The truth is, the UK lending industry has been caught napping: an incredibly popular lettings model has come along and most lenders are yet to adapt their policies and product range in a way that meets a growing market need.

But not all lenders and brokers are blind to these developments. For further information on a company that’s fully geared up to catering for the UK’s budding community of Airbnb entrepreneurs, visit www.copofi.com today.

 

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