Looking for a mortgage for an Airbnb property? Read our guide to learn everything you need to know.
No impact on your credit score
Author: Pete Mugleston - Mortgage Expert
Updated: December 16, 2021
If you’re looking to raise some extra cash, then investing in an Airbnb holiday rental property could be just the thing.
In this article we’ll guide you through the options available , as well as the best ways of getting a mortgage for an Airbnb property.
The following topics are covered below...
Can you use any type of mortgage for an Airbnb property?
This is very much horses for courses, and depends on how you intend to let your property. Are you planning to let the entire property, or just a couple of rooms? There are several types of mortgage you could potentially use, and they include…
There are no specific mortgages aimed at Airbnb hosts, but there are mortgage brokers who specialise in helping them get the best rates and deals.
The exact type of mortgage you’ll need will depend on several factors, and we’ve broken them down for you below…
Using a residential mortgage
It’s quite possible to offer Airbnb accommodation on a residential mortgage, but it is vitally important that you let your mortgage provider know what you are planning.
If it is a room or two you hope to let out to holiday makers, then there are lenders out there who would give their permission.
But be aware that if you want to let out the entire property, then the majority of lenders would see that as a breach of their terms and conditions, which at worst, could see the entire mortgage debt being called in.
The main reason is because a residential mortgage is meant to be used as your home, not an income stream, and residential mortgages usually have lower interest rates to reflect that.
Using a buy to let mortgage
If your plan is to buy a property to let exclusively as an Airbnb, then a buy-to-let mortgage can be a good option.
An Airbnb differs from a normal buy to let, in that the tenants are there for a relatively short term, as opposed to a normal rental which is usually 12 months or more.
So, your mortgage provider may set limits on how long your property is available over a 12-month period. A limit of 90 days over a calendar year is common, while other lenders may allow three months, and a few may allow up to six months.
As you can see, this leaves you with a rental ‘hole’ in your year, that you either need to fill with short term tenancy agreements, or make enough from your holiday tenants to carry you through the financial year.
What about changing your residential mortgage to buy-to-let?
This might be a better option if you want to let the entire property as an Airbnb. Whether you can switch to buy to let from residential will be at your lender’s discretion, and your chances of success will hinge on whether you meet the eligibility criteria for a buy-to-let mortgage.
The deciding factor here is likely to be the property’s rental potential. Your chances of approval will also be higher if you’ve had your mortgage for more than six months.
Speak to your mortgage provider, or better yet, get advice from a broker who specialises in this area.
Holiday let mortgages
As they are usually rented out on a short-term basis, many lenders are more than happy to allow the holiday let properties to be used for Airbnb purposes.
In fact, there are a surprising number of holiday-let type mortgages being offered specifically for the Airbnb market.
If you own a second property, it’s potentially possible to rent it out on Airbnb. As many people already have second, or holiday homes, sometimes all they need to do is notify their mortgage provider that they would like to become an Airbnb host.
Speak to a Buy-To-Let expert
How to get a mortgage for an Airbnb property
Doing a bit of preliminary work can make the mortgage process much more straightforward. Here’s a few simple steps you can take to give your application the best chance of a successful outcome.
- Do some research and have your documents ready: First things first – do your research on the type of property that could fit the bill. Give serious thought to what rental yield you could possibly make (speak to a local agent) and when you could rent it out (and for how long).
Getting the necessary paperwork ready in advance will save time and worry. It’s essential that you have three months’ of bank statements, proof of address (make sure you are on the electoral roll), along with proof of income. You’ll find a full list of the paperwork you’ll need in our complete guide to mortgage applications.
- Check your credit reports: We’d recommend that you check all of your credit reports before you put in your application. This will flag up any black marks on your credit rating you may not be aware of, and gives you the opportunity to challenge any inaccuracies or have outdated information removed. You can download your credit reports through our dedicated credit reports hub.
- Speak to a specialist mortgage broker: Once you’ve got your documents ready, we’d recommend that you speak to a mortgage broker who specialises in mortgages for Airbnb properties. They can run through the main mortgage options available to you (as outlined above) and increase the chance of a successful application. Your broker will then guide you through the process, offering you relevant advice and increase your chances of a successful mortgage application by finding you the right mortgage lender to approach.
We offer a free, broker-matching service, that will quickly assess your needs and circumstances, and then pair you with a mortgage advisor who’s ideally placed to help you get an Airbnb mortgage – Make an enquiry to get started.
What eligibility criteria you’ll need to meet
Eligibility is pretty similar to any buy to let mortgage, but with a couple special caveats, as outlined below. Lenders will view your application as a business, so you will have to prove that it is viable and you will be able to make the repayments.
Your rental return is the difference between your repayments and the amount of rental income your property generates. Most mortgage providers expect to see a projected rental return of between 125%-145% before they would approve your application.
So, if your property attracts a mortgage interest payment of £1,000 a month, and you can generate a rental income of £1,400 a month, then your rental return would be 140%.
Avoid any houses that have non-standard construction. A tile roof and brick construction are considered a standard construction.
Anything else, such as a thatched roof, steel frames, concrete prefabs, listed country cottages, timber frame, high rise flats etc may require a lender who specialises in non-standard property mortgages and you may end up paying a higher interest rate.
While most mortgage providers base their affordability on your airbnb income, some may expect you to have a minimum income from elsewhere, such as a job or pension to cover repayments if the rental returns are lower than expected, or if there is a gap in your rental income due to lack of tenants.
It’s all about proving that you are a good financial risk.
Your credit history
Having a clean credit rating demonstrates a lower risk to the mortgage provider, and the more likely they are to approve your application.
You should avoid taking out any new financial commitments in the lead up to your application, such as new loans or credit cards.
A poor credit history can incur higher interest rates as you are seen as more of a risk, as well as reducing the number of lenders prepared to consider your Airbnb mortgage application.
It is, however, possible to get a mortgage with a history of bad credit and you can read more about this in our guide to bad credit mortgages.
How much deposit you’ll need
Most lenders require a minimum loan to value (LTV) of around 75-80%, which means you are looking at a deposit minimum of 20-25% of the property value.
To put that into context, a property valued at £100,000, will require a deposit of at least £20,000 or more.
The larger the deposit you can put down, the better your chances of securing a mortgage and potentially lower the interest rates.
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Which lenders offer these mortgages?
There were relatively few originally, but this is a growing market and more and more lenders are seeing Airbnb mortgages in a better light.
All mortgage providers are different, and each one will have different products and lending criteria.
Here are a few specialist lenders and an overview of their criteria –
- Tipton & Casely. They have two products suitable for Airbnb and short letting. A 25% deposit is required and their interest rate starts at 2.49%.
- Castle Trust. This company specialises in people who need to refinance existing loans or raise capital. Higher fees are charged for these services.
- Metro Bank. Possibly unique in the market, in that they will allow you to rent out your home on Airbnb for up to 90 days without the need to inform them.
- Paragon. A 30% deposit and a personal income of £25,000pa is required.
- Principality Building Society. A 75% loan to value is required (25% deposit) with an income of at least £20,000pa. Only one Airbnb per customer allowed.
The above information on lenders is indicative only and offers and interest rates can change on a daily basis. Consult an experienced mortgage broker for the most up to date information.
The truth of the matter is that the deals on offer are often complex and time consuming to understand, so approaching a mortgage provider directly in this case, is definitely not something we’d recommend.
Most Airbnb mortgage providers are not high street lenders, but highly specialised lenders and finding the right one can be difficult.
Is Airbnb mortgage interest tax deductible?
It all depends on how you set up your business. Talk to a financial advisor or a mortgage broker who specialises in Airbnb mortgages, to see if you qualify for tax deductions.
With the right advice, you may be able to claim additional tax deductions on things such as –
Get matched with an Airbnb mortgage expert
Being an Airbnb host can be rewarding and profitable, and while there are some barriers to overcome when applying for an Airbnb mortgage, with the right advice it’s not impossible.
If you meet the mortgage providers criteria outlined above, there is no reason you shouldn’t be able to welcome guests into your own Airbnb.
But it is essential that you talk to an advisor or mortgage broker who is an expert in mortgages for Airbnb, someone who will provide the right advice and find you a mortgage deal that suits your own individual financial circumstances.
Call 0808 189 0463 or make an enquiry and we’ll match you with a broker who specialises in Airbnb mortgages today.
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About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!