With more and more people letting out their properties SpotHost, a short-term rental management company based in Glasgow, discusses the impact that Airbnb has on mortgages and buy-to-let properties as well as how its evolution has given rise to 'fintech' companies.
Times are changing and more and more people are letting out properties, not just to long term tenants but increasingly to short-term Airbnb guests. Why? It’s not only a way of earning extra cash, but it means you can use the property yourself too if you wish, between the short-term rental periods. All the advantages of being a landlord – but you have the opportunity to have a second home too.
Airbnb led the charge and, followed by other similar platforms, has encouraged homeowners to rent out their properties, allowing them to make extra income. Their initial model was ‘homesharing’, a true ‘sharing economy’ idea – where a room or part of a property is rented out to a guest who stays there along with the ‘host’. It’s communal, sociable, and allows visitors to a city to ‘live like a local’ and spend a lot less than they would have done in a hotel.
This model has evolved and now more people have turned to renting out their entire home on either a part time or if they have more than one property, a full-time basis on Airbnb. Existing landlords are turning to Airbnb too, to boost income – which is, in turn, putting pressure on the long-term rental market.
The problem is that the original Airbnb model has evolved so much that it has ceased to be about just hosting, and has started in some cases to be more about subletting. And as a result, a new challenge has arisen – namely, the potential to breach mortgage lender agreements. Airbnb hosts who let out their whole property have crossed a line from host to landlord, and need to be careful that they have the correct approval or consent from their mortgage provider to allow short-term letting.
What about buy-to-let mortgages? Currently, if you buy a property specifically for letting purposes, it needs to be a ‘buy-to-let’ mortgage. This sounds complicated to the uninitiated but it’s really just a standard mortgage with a few ‘small print’ changes in the agreement, plus a higher interest rate.
However, most buy-to-let mortgages are based on a short assured tenancy agreement, so many property owners with a buy-to-let mortgage opting to use the Airbnb platform need to tread with caution to ensure that they are allowed to participate in short-term letting – if they’re not, they could be breaching the terms of their agreement. This situation doesn't just apply to mortgage lenders; property owners could also breach the terms of their insurance agreement by letting out their property short-term, which is why new ‘insurtech’ companies like GUARDHOG who specialise in ‘host cover’ have sprung up.
It hasn’t taken long for the financial industry to catch on to this new trend… ‘Fintech’ companies like Copofi are filling the gap and offering lending for properties which allows the homeowner to make money through short-term letting on platforms. They’re aware of the short-term letting model and the likes of Airbnb who encourage it. And, to market their products, they emphasise the potential pitfalls of letting out a property without the right type of mortgage.
Copofi quotes the Telegraph on their website: “Home owners letting a property directly run the risk of invalidating the terms of their mortgage, meaning that in a worst-case scenario a lender could ask for full repayment”, explains finance journalist Olivia Rudgard.
It’s a compelling message and one which is forcing many established mortgage lenders to review their lending policy to keep up with these changing times. Many providers have not yet fully understood how to deal with this shift – but the ones who adapt most quickly will be the ones that prosper in this rapidly changing environment.
Akash Sharda is a Glasgow-based entrepreneur and founder of SpotHost. SpotHost’s mission is to provide property owners with the most responsive and comprehensive management service for their sharing economy rentals.