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News analysis: Is the mortgage industry adapting to the Airbnb market?

Airbnb is rarely out of the headlines. While courting controversy in places as diverse as Venice and Edinburgh, it is, nevertheless, enjoying consistent growth, and many homeowners want to get in on its potential rewards.

Previously, Mortgage Strategy investigated lender attitudes towards homeowners with a residential mortgage hosting their properties on a short-term basis. Our research revealed that this was unacceptable to many mainstream lenders, and in fact counted as a contract breach.

Examination nearly a year on reveals that the picture has not changed despite the increasing size of the ‘sharing economy’.

The sticking point appears to be the idea of letting out the entire property while the mortgage owner is not present, but even if the homeowner rents out a single room, letting in this way comes with an administrative headache – and in some cases, a financial cost.

“It [short-term letting] would be a breach of the mortgage’s terms and conditions for a residential property (or part of it) to be let out without prior consent,” says an RBS spokesperson.

However, the bank does offer a ‘consent to let’, but says that “in these situations we would expect the let to be for a reasonable period e.g. six months and not the very short-term nature that Airbnb typically offers.”

Santander, too, offers some leeway for letting, although forward planning would be necessary, which arguably does not dovetail with the way Airbnb works.

A spokesperson for the bank says: “If… the owner would no longer be resident, this would fall under our consent to let process which requires payment of a one off £295 fee, and is subject to T&Cs relating to the letting. Each application is considered on a case by case basis. However, we will not give consent within at least the first six months of purchase.”

Nationwide appears to be the most stringent. The building society says: “We do not allow Airbnb type lettings of whole properties with a prime Nationwide mortgage where it is their only residence. We may consider it if a borrower wishes to rent out rooms on the basis of short term restricted accommodation. Borrowers must continue to occupy the property on a permanent basis, the property must continue to be used for residential purposes and borrowers must inform their lender of their intention to ‘rent a room’.

Lloyds Bank, however, was more flexible, allowing residential mortgage owners to “let their main residential property for up to 16 weeks a year for holiday purposes, as long as they meet certain conditions. These include the sole purpose of the let must be to allow the tenants to use the property for a holiday and the rent must be paid in advance.”

AirBnB through a holiday let?

Recently, Tipton & Coseley Building Society announced that it would allow Airbnb hosting on its new second home mortgage, and Metro Bank allows for short-term letting on its residential mortgage.

We wanted to see if this flexibility was a growing trend elsewhere, and if so, in which products change was occurring.

We spoke to Mortgages for Business head of commercial Andy Elley about the possibility of budding Airbnb hosts using a holiday mortgage. He is hopeful that this will grow: “We’ve been badgering lenders for 18 months to loosen the purse strings and we feel that we’re finally getting through to them… Specifically we have been asking lenders to take projected future letting income into account when underwriting applications.

“One of the new commercial lenders is seriously considering our proposal and we expect them to make a decision very soon,” he adds.

We therefore asked Leeds Building Society if it would be permissible to let to AirBnB through its holiday let product.

According to a spokesperson, “we regularly update our offering to meet the requirements of the market… that includes regularly repricing our products and accepting holiday let mortgages for properties being offered via Airbnb, unlike many other lenders, as well as providing the option for owners to holiday in their own property during the year.”

It seems that the industry is slowly coming around to the idea of the sharing economy and new ways of thinking are taking place, but the mainstream lenders have some catching up to do.

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