Landlords with buy-to-let mortgages risk breaching their loan terms if they start using their properties for short-term holiday lets through Airbnb instead of renting them out to ordinary tenants, the lending industry has warned.
A report by the Residential Landlords Association (RLA) noted a 27% increase in the number of London listings on Airbnb to 42,646 between February and June 2016. Of those, 61% were advertised as available for more than three months. The number of entire homes or apartments listed on Airbnb in London increased by 24% to 21,861 in June.
Moreover, the RLA said 41% of all listings in June were 'multi-listings', meaning the owner had more than one property listed. Short-term holiday lets can potentially attract higher returns for landlords because the per-night price can be significantly higher than for private rents. The RLA said a rise in landlords using Airbnb threatens to make the country's housing crisis worse.
But mortgaged landlords who unilaterally swap long-term rental for short-term holiday lets likely fall foul of their loan conditions, and could face punitive consequences from the lender.
"Most lenders do not allow borrowers to offer short-term lets on their properties, whether on an owner-occupied or buy-to-let mortgage," said Bernard Clarke, spokesman for the Council of Mortgage Lenders (CML), which represents 97% of the industry, to IBTimes UK.
"That is because lenders accept the risk associated with a particular kind of mortgage – so a loan to an owner-occupier is advanced on the basis that the property it to be occupied by the borrower and his or her family. Similarly, lenders offer buy-to-let mortgages expecting there to be a stable, reliable rental income to enable repayment of 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."
Clarke said borrowers should consult their lenders before taking any action that may affect the terms of their loan. This was echoed by a spokesman for Virgin Money, a lender with buy-to-let mortgage products.
"In our terms and conditions it states that any letting must be on tenancy agreement," he said. "If a customer was thinking of changing the basis of the tenancy arrangements then they must contact us to seek approval. We request a tenancy agreement to be put in place in order to protect the customer, the tenant and our interest in the property.
"Requests to rent out a property on an ad hoc, short-term basis would not meet the standard buy-to-let mortgage criteria. It is difficult to check whether property is being offered on ad-hoc, short-term lets, but the terms and conditions of a customer's mortgage agreement are made very clear at the outset and there would be a risk on their part to proceed knowingly without talking to us as their lender."
Founded in 2008, Airbnb is a digital marketplace allowing homeowners to list rooms or properties for holiday lets. It is part of the so-called 'sharing economy' wherein ordinary people put their assets and resources to work and generate an income. Airbnb claims to list properties in 31,000 cities across 191 countries, serving more than 60 million guests since its creation.