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Welcome … but the
consequence of opening your door to Airbnb guests could be worse than
you thought. Photograph: Alamy
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Beware
the Airbnb guests who could end up costing you your home
The
rise in popularity of sites such as Airbnb has been incredible, but
renting out your house is likely to be a breach of your mortgage
terms, meaning charges or rate rises – or worse
Donna Ferguson
Saturday 2 April
2016 06.59 BST
It was one of the
budget’s most eye-catching giveaways: a tax break for people who
use websites such as Airbnb to rent out their home. But a Guardian
Money investigation has found that many people who might be
considering hosting Airbnb guests in the wake of George Osborne’s
announcement could land themselves in a whole heap of trouble with
their mortgage lender.
We found that in
some cases borrowers might be hit with a fee or face a higher
mortgage rate. In others, the consequences could be far more severe,
with some homeowners potentially risking a demand for the immediate
repayment of the whole mortgage or even, in theory at least, being
threatened with repossession.
That was the message
from banks, building societies and property experts this week after
Money checked the small print of mortgage contracts issued by the 18
biggest lenders in the UK. We also sought legal advice on the typical
rights of leaseholders and tenants when it comes to hosting Airbnb
guests.
The popularity of
sites such as Airbnb, which enables you to offer paying guests
temporary accommodation in your home for short periods, has risen
sharply in recent years, and in his March budget the chancellor
announced that the first £1,000 of income earned in this way will be
tax free from April 2017.
It’s the second
tax break which will benefit such “landlords”, following on from
the increase in the “rent-a-room” allowance (which allows you to
rent a room in your home to a lodger) from £4,250 to £7,500 a year
that takes effect from next week.
Our findings suggest
the big winners are likely to be the “property elite”: older
homeowners, many well-off, who own their homes outright. But some
might wonder whether a lender would really find out if a mortgage
holder had paying guests staying every now and again? Should you just
do it anyway and hope for the best? And what if you only want to rent
out a room?
What the lenders
told us
Without consent, any
Airbnb host with a mortgage is likely to find themselves in breach of
their home loan contract.
Customers with Bank
of Ireland, Barclays, the Co-op, Clydesdale bank, Coventry building
society, Halifax, HSBC, Lloyds bank, Leeds building society, Metro
bank, Nationwide, the Post Office, Royal Bank of Scotland/NatWest,
Santander, Skipton building society, Virgin Money, Yorkshire building
society and Yorkshire bank who let out their property on Airbnb (or a
similar site) without consent are breaching the terms of their
contract. The Council of Mortgage Lenders (CML) says it is likely
that all owner-occupiers will find a clause in their paperwork
preventing the letting of the property on any basis without prior
consent.
If you do seek
permission for a short-term rental of your entire home – for
example, when you are going on holiday for a week – the Co-op,
Clydesdale bank, Yorkshire bank, the Bank of Ireland, the Post
Office, RBS and Virgin Money would not allow it. Neither would
Nationwide on a primary residence.
Santander and TSB
said they might allow it, depending on your situation, although
Santander would charge a £295 fee for each consent period. Other
lenders also said requests would be decided on a case-by-case basis,
but most are unlikely to give their consent, according to the CML.
Spokeswoman Sue Anderson says: “It’s possible some lenders may
allow some occasional ad hoc use on an exceptional basis in
individual circumstances.”
However, she adds,
most lenders do not allow borrowers to offer short-term lets, whether
they are owner-occupiers or on a buy-to-let mortgage.
Ray Boulger of
broker firm John Charcol says that as a general rule, most lenders,
if asked, would say no. A notable exception is Market Harborough
building society, which openly states it will allow Airbnb hosting
for up to 24 weeks a year if you seek consent. But this could
increase your mortgage rate. New applicants should expect to pay a
variable rate of 3.99% – around two percentage points higher than
the best buys available on the market.
For many, renting
out your entire home is the whole point of joining a site such as
Airbnb. But what if you only want to rent part of it – for example,
just one room? Again, Market Harborough will allow this, subject to a
potential increase in the mortgage rate.
Nationwide says it
will consider allowing renting out a room “on bed and breakfast
terms”, provided no more than two bedrooms are allocated to paying
guests and the home insurer has been informed.
TSB, Santander and
RBS said that in general they would be open to the idea of Airbnb if
a borrower wanted to rent out a room, but stressed consent would
depend on the merits of each case. RBS said there would be a £100
fee.
Other borrowers may
struggle. “Airbnb is a relatively new phenomenon, so most lenders
don’t have a strict policy aimed at temporary paying guests,”
says Pete Mugleston of OnlineMortgageAdvisor. “Some lenders don’t
allow them, and most only allow longer-term lets. If you ask – and
you have to – it will usually be a no to Airbnb.”
David Hollingworth
at mortgage broker London & Country adds: “If your lender does
agree, it may require your guest to sign a consent form which
acknowledges the rights of the lender. This is unlikely to be a
practical option for a few days’ rental at short notice.”
Carrying on without
consent
If you ask your
lender and they say ‘no’ you can’t plead ignorance if they find
out …refinance rather than going ahead
“If you ask your
lender and they say ‘no’, you can’t then plead ignorance if
they find out,” says Mugleston. “That’s not to say you
shouldn’t seek consent, but if you are declined, you should
refinance to a lender that allows it, rather than going ahead.”
Could a lender find
out if you didn’t tell them? Simon Checkley at broker Private
Finance says lenders have internal monitoring teams able to perform
checks to determine whether you are living in the property or renting
it out.
However, none of the
lenders we contacted said they check Airbnb to try to find out if
borrowers were letting their property on the site without permission,
and the CML says most lenders are unlikely to check proactively on
their entire loan book. “Lenders can look at a website as easily as
anyone else, but most will have better things to do,” Checkley
says.
If your bank or
building society does discover you are hosting on Airbnb without its
consent, the CML says it could seek immediate repayment of the total
mortgage under the terms and conditions of the contract.
Clydesdale and
Yorkshire banks, for example, say letting on Airbnb without consent
“ultimately could result in the mortgage being recalled”, adding
that “this is likely to be a last resort”.
Boulger agrees that
such a move would be extreme: “As long as mortgage payments are up
to date, there is no way they would do that, and so a lesser penalty,
along the lines of a rate increase or a fee, would be more likely.”
Yorkshire building
society, for example, confirms that an unauthorised letting on Airbnb
could potentially lead to a mortgage rate increase of 1.15%. However,
this would only be due for the short periods you had let the
property.
Lenders may prefer
to initially give you a warning. “I suspect that in practice, if a
lender discovered an historic breach it would write reminding its
customer of the terms of their mortgage and spell out the need to get
permission if they want to use Airbnb or a similar site in the
future,” says Boulger. “If the borrower wanted to do that,
charging an admin fee to regularise and authorise future lettings,
rather than increasing the rate, is I think the most likely lender
response.”
The CML warns: “It
would clearly be a dishonest and risky strategy on the part of
borrowers to proceed knowingly [on Airbnb] without talking to their
lender.”
The CML says lenders
are concerned about the risks involved with a short-term let. “What
if the borrower moves out and expects to gain an income from regular
short-term lets that do not materialise? What if a short-term let
results in a bad experience where the tenant severely damages the
property or even destroys it?” asks Sue Anderson.
In this situation
Airbnb hosts would probably rely on the website’s “host
guarantee” which covers any damage caused by the guest during the
rental period, up to £600,000. But the CML stresses that lenders
require borrowers to have buildings insurance, and that policies may
not cover a property that is being let on a short-term basis.
“Anyone who hosts
a property on Airbnb could invalidate their buildings and home
contents insurance policy if they fail to inform their insurer in
advance about their paying guests,” says Ben Wilson of
Gocompare.com. “As a result, insurers may decline a claim – even
if the claim occurs after the guests have left and is unrelated to
any aspect of their stay. It’s also worth noting that such a claim
would not be covered by Airbnb’s £600,000 host guarantee, since it
was not during the rental period.”
The Association of
British Insurers (ABI) says insurers are becoming more aware of the
needs of Airbnb hosts, so it is quite possible you will be fully
covered if you do inform your insurer about what you are doing.
For example,
although LV= and Direct Line will refuse to cover Airbnb usage of
your home as a general rule on their standard policies, other
insurers including Aviva, Axa and More Th>n say that once informed
they will agree to cover occasional Airbnb hostings.
Insurers may,
however, apply exclusions for theft (except by forcible or violent
entry) and malicious or even accidental damage during the Airbnb
rental, in addition to hiking your premiums. If this happens,
consider asking a broker such as Towergate, which specialises in
insurers happy to cover Airbnb rentals, to find you a better deal.
“Hosting on Airbnb is not likely to incur an increase in your
premium via a specialist insurer,” says spokeswoman Annie Plaskett.
The ABI says insurers do not, in general, insist you inform your
mortgage lender if you let out your home, though you should check the
wording of your policy carefully.
If properly insured,
the legal risks of lending to owners of freehold properties who host
on Airbnb are tiny, if there are any at all, say both Howard Dent, a
senior lecturer at the Manchester Law School, and Nyree Applegarth, a
property litigation partner at Higgs & Sons solicitors.
“The Airbnb guest
would not be a tenant because there is no tenancy agreement, just a
licence to use the property, and they would not accrue tenancy
rights,” says Applegarth. “If they overstayed their welcome
they’d be trespassing, and typically, within two weeks, you’d be
able to get an expedited court hearing to get the guests out. Lenders
should be more relaxed about this.”
Dent agrees: “I
don’t know what lenders are afraid of. Perhaps if the borrower
stops paying the mortgage it might slightly complicate the job of
taking possession of the property if the guest is still staying on.
But there’s no possibility of an Airbnb guest’s interest in the
property having any priority over the mortgage lender’s.”
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