Operating an Airbnb space or property has become increasingly popular as travelers continually seek more comfortable and affordable accommodations when on vacation.
Lenders are becoming more lenient with their financing for short-term, vacation-let-style properties rather than just AST rentals (Assured Shorthold Tenancy) that are rented out for at least six months.
If you’ve ever been interested in becoming an Airbnb rental property owner but aren’t sure where to start, in this guide, we'll examine the range of financing options available for buying an Airbnb property with a mortgage.
We Cover The Following:
What Is the Eligibility Criteria For An Airbnb Property
What Is An Airbnb Buy-To-Let Mortgage?
Airbnb is an online platform that allows homeowners to rent out their homes for short periods of time to visitors. Hosts get to decide how much to charge visitors per night and are in charge of managing the property themselves.
It’s completely free to list a property on Airbnb, but there are service fees charged to both the host and visitor for using their platform.
An “Airbnb buy to let mortgage” refers to a type of financing that can be used by an investor to buy a property for the purpose of letting the property out and using it for Airbnb purposes.
Keep in mind when trying to secure financing for an Airbnb rental property that mortgages for investment properties work differently than a mortgage for your primary residence might.
It’s likely that a larger down payment will be required to secure the financing, usually a minimum of 25-30%, and you’ll likely face higher interest rates as well. One of the main reasons for this is it poses a higher risk to the lender if there are instances of rental voids.
Is It Harder to Get An Airbnb Mortgage?
In general, it’s more difficult to get a mortgage for an investment property.
While you may be able to secure funding for an Airbnb property, keep in mind that there will be risks when managing the property, too, as with any investment property. Below are two common risks:
Risks Of House-Sharing
Lenders tend to be averse to any potential risk when working with borrowers, so it can be somewhat difficult to secure financing for a rental property if you don’t have the cash out of pocket or a long track record of success with managing rentals.
Short-term rental properties are considered riskier than properties that operate with longer leases for a number of reasons.
First and foremost, you’re responsible for constantly renting the space out to keep income flowing. If you can’t find tenants for your space for a few weeks or a few months, you make no rent money during that time, which could affect your ability to pay back a mortgage on the property.
Second, if your Airbnb property isn’t also your primary residence or you’re not living on-site, this is considered a risk to your lender as well. Should you have financial troubles, the first thing you’re likely to pay if you can’t afford to make payments on everything is your primary residence’s monthly bill.
Investment properties, particularly short-term rentals, fall further down the priority list – making them something lenders will be warier to entrust mortgages for.
Risks Of The Travel Industry
Operating an Airbnb rental is not just something that will require you to constantly lease the property to tenants, it is also something that will require consistent management.
One of the biggest risks of operating a short-term rental is sharing your space with strangers. There’s always a risk a visitor could trash the property or cause damage.
While Airbnb may provide some support to you if a guest destroys your rental space, in the time it may take you to clean up, you may have to deny bookings which could result in rental voids.
There are always things that could potentially come up, and anything that causes you to postpone new bookings will result in lost money.
The Benefits Of Being An Airbnb Landlord
Operating A Rental Property With Great Returns
One of the main advantages of hosting on Airbnb is the chance to earn rental income.
While the average income for this type of accommodation is approximately £3,100 annually in the UK, the actual amount you can make may vary depending on your property's size and location.
Furthermore, Airbnb is categorized as a business, not a standard Buy to Let, which makes it exempt from regular tax regulations. As a result, you can offset your mortgage interest payments, allowing you to keep more of your earnings.
Airbnb Mortgage Interest Tax Deductions
If you own an Airbnb property, you might be eligible to deduct taxes from your mortgage payments, rental commissions, cleaning expenses, and insurance premiums.
However, it is advisable to consult with a financial advisor who can offer customized guidance on how being an Airbnb landlord can impact your financial situation.
What Are The Costs Involved With An Airbnb Property?
Airbnb Hosting Fees
Anyone looking to get started will be happy to learn that there are no fees associated with listing their property on Airbnb. Only once your income begins to flow in do you begin paying. This gives new hosts the chance to test the waters of interest risk-free and is great for them if they are unsure whether their property will rent.
You will be charged a portion of the total rental price when someone rents your space through Airbnb. This represents £3 out of every £100 you earn, or 3% of the total rental price for the majority of hosts.
Of course, you will be in charge of the property's additional running costs, just like you would with your own home. These most likely consist of:
Broken goods need to be repaired and replaced.
Additionally, you must think about how much time you will need to manage your reservations and rentals. In essence, Airbnb serves as a marketplace where visitors can search for and reserve your property.
The host is responsible for the laborious work that goes on behind the scenes.
Gaining positive reviews will put you in a better position when other visitors are deciding where to stay if you put in the effort to make sure your guests have an excellent experience.
The comments and feedback you get will raise the ranking of your rental, increase the number of views from potential customers, and ultimately increase bookings.
When determining how profitable your rental is, all of the aforementioned factors must be taken into account.
What Is the Eligibility Criteria For An Airbnb Property
The requirements for eligibility in a buy-to-let mortgage are generally similar, but there are some specific conditions that must be met.
You will need to provide evidence that your application is a viable business and that you are capable of making the required repayments, as lenders will assess it from a business perspective.
When applying for a mortgage, some lenders may require you to have a source of income besides your earnings from Airbnb.
This additional income could come from a job and would be used to cover mortgage payments if rental profits fall short or if there is a temporary vacancy.
Ultimately, the goal is to demonstrate that you are financially stable and able to manage the mortgage responsibly.
To assess your rental return, you need to subtract the amount of rental income your property generates from your monthly repayments.
Typically, mortgage providers require a projected rental return ranging from 125% to 145% to approve your application.
For instance, if your property generates a rental income of £2,100 per month and your mortgage interest payment is £1,500 per month, your rental return would be 140%.
You can use our calculator to estimate how much roughly you can borrow.
Do Lenders Still Have An Appetite For Buy To Let Airbnb?
Alternative finance lenders have stepped in over the years to fill in the funding gap that traditional lenders did not cater for, giving landlords the opportunity to diversify their portfolios with some choice high-return properties in sought-after holiday locations.
For example, loans of up to £3 million are now available from a specialist lender for purchase or remortgage.
Most lenders will consider Airbnb-type lettings on Buy-to-Let mortgages, with a restriction placed on the duration of the property available for rent during the calendar year.
Which Lenders Are Currently Offering Airbnb Mortgages?
The majority of high street banks do not offer holiday let mortgages because they are a specialised area of finance. The main lenders within the holiday let market include:
The Cumberland: is an adaptable all-arounder that excels at handling challenging situations.
Furness Building Society: This lender is excellent at taking a comprehensive view of each opportunity and evaluating affordability. It is more comfortable with smaller loans.
Leeds Building Society: offers some of the best rates available, however, they treat vacation rentals like long-term rentals, which can produce some odd outcomes.
Bath Building Society: This lender is perfect for complex cases if you don't mind paying higher rates.
Principality Building Society: is a significant lender with some of the best interest rates, but you must adhere to strict requirements.
Monmouthshire Building Society also has strict lending requirements that you must abide by.
Mansfield Building Society: A lesser-known lender with a flexible underwriting strategy
Scottish Building Society: is not the only one in Scotland that is ideal for vacation rentals.
Ipswich Building Society: 80% LTV products are only offered for holiday rentals in specific postcode catchment areas
Teachers Building Society: This lender takes great pride in its ability to handle anything, including complicated real estate and income situations.
Metro Bank: is a lender that is comfortable with 90-day vacation rentals annually.
Melton Building Society: Another helpful organization with very strict lending requirements
The Tipton and Coseley Building Society: more for a second home than a holiday let, this lender needs to know that you plan on using the holiday home mostly as your personal hideaway.
According to our research, there are at least ten more lenders who all offer additional holiday loan mortgages but simply do not appear when you search online via search engines.
How To Get The Best Airbnb Mortgage Rates?
To secure the best rates for an Airbnb mortgage, it’s important to be able to show strong evidence of affordability.
The track record of rental income from your property will also be crucial. The more you can prove that the repayments can be adequately covered through your income, the stronger the likelihood that you will attract lenders offering the most competitive rates.
Every lender is different, but many don’t accept property that is non-standard, unique, or a listed building. This may be because they fear the properties are at higher risk and could be harder to sell in the future.
That said, there are lenders who are happy to consider a wide range of property types.
A poor credit record will likely have a detrimental effect on your Airbnb mortgage application and certainly influence the interest rate you may have to pay.
This will vary from lender to lender as they all adopt different rules. Some lenders will not accept such applications whereas others will consider them depending on the circumstances.
The size of your deposit will also influence the interest rate you’ll get for a mortgage, particularly one for a new venture such as an Airbnb rental property.
The higher the deposit you can provide, the better the interest rate will be, as this offers more comfort and security for the lender.
How Does Our Process Work?
We want to make the process as quick and simple as possible. All that is required initially is to fill in the 'get started form' and we will arrange a convenient time for an introductory call.
You can read further on our full mortgage process here
Why Choose Accelerated Finance?
We have worked with hundreds of applicants to help them secure the right deal in all kinds of circumstances.
Whether you’ve got poor credit, a complex income or are purchasing an unusual building, we have seen it all – and we’ll know exactly how to assist.
If you’re interested in financing an investment property to get started as an Airbnb host, apply for a mortgage online today.
Did you know?
Customers who are trying to source an Airbnb mortgage only have access to one-third of the Buy to Let mortgages available unless you use a specialist mortgage broker.
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.
Accelerated Finance Limited only considers applications for commercial or investment properties.
Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders. Your property is at risk if you fail to make payments on a Mortgage Contract. Please note that Accelerated Finance Limited and its employees do not give financial advice or recommendations on any product.