Banks have been slow to respond to the growing demand from borrowers who want to rent out their property as a short-term let. The rapid rise of Airbnb, as more people opt for ‘staycations’, and the move towards the popular concept of a sharing economy by many seems to have left mainstream lenders unable to meet borrower’s needs.
One of the few lenders permitting short-term rentals is Metro Bank, which is calling on all lenders to catch up with customer needs and allow them to let their properties for a few days or weeks at a time. The big six lenders – Barclays, HSBC, Lloyds, Nationwide, RBS and Santander – do not permit short-term lets on any of their buy-to-let products. On residential mortgages, Barclays, HSBC and RBS explicitly rule it out as an option, while Lloyds, Nationwide and Santander may permit it with strings attached.
Traditionally, lenders have not supported holiday lets because the level of risk is too high. The chance of damage to a property increases significantly if more people have access to it. Coupled with the possibility that a property is also left empty for extended periods, then it is unsurprising that the risk is perceived to be too great for mortgage lenders.
Booming holiday let market
In recent years, the UK holiday let market has been booming. According to Visit England, the number of people booking self-catering holidays in England increased by just over a million to 7.23 million between 2015 and 2017. Housing website Inside Airbnb reports that London listings for Airbnb have increased five-fold over the past four years, and in Edinburgh, they have doubled since 2016.
Mainstream lenders left behind
Despite the reluctance of the mainstream high-street banks to respond to customer demand, some lenders recognise the opportunity. Metro Bank is the biggest name in the short-term letting market, allowing residential homeowners to let their property for up to 90 days as a holiday let, although this isn’t available on its buy-to-let range.
“The past few years have seen an increase in the number of lenders offering holiday BTL mortgages,” says Commercial Trust chief executive, Andrew Turner, plus mortgage brokers are reporting that the number of lenders offering holiday let mortgages, while still small, is slowly increasing.
Holiday lettings lender Leeds Building Society reported a 19% rise in applications for holiday let finance in the first six months of this year compared to the same period in 2017. Other lenders that permit holiday lets include Bath, Cumberland, Furness, Harpenden, Leeds and Tipton and Coseley Building Societies; and Scottish Building Society joined the ranks when it launched a new mortgage product that allows holiday lets in August.
Head of business development and sales strategy Paul Alexander, Scottish Building Society, says: “We have seen massive growth in the number of properties let as holiday accommodation through sites such as Airbnb.
“Brokers have told us there is a demand for a product designed to meet the needs of this developing market.”
Consequences for homeowners flouting mortgage contract
However, with the surging popularity of short-term lets to make some extra cash, some homeowners may be flouting their lender’s rules without realising they need to notify their lender. If you are letting your home without explicit consent from your mortgage provider, then you are in breach of contract and could face some serious financial consequences.
A lender could increase your rates, issue a credit file black mark or even ask for immediate repayment of your loan. The message is if you want to short-term let your property, check your mortgage terms and conditions first, and if your existing lender doesn’t support short-term lets, find one that does.
It’s time for banks to move with the times
There is no doubt that short-term property letting has a significant role to play in the UK’s thriving sharing economy, one where you don’t have to own because you can borrow, and it’s about time lenders caught up with their customers.
According to Paul Riseborough, Metro Bank chief commercial officer, “The sharing economy is a fact of life. Banks face a choice: to support customers in the choices they make or risk losing them.
“It’s about responding to what customers tell us they want – and that’s flexibility and choice in how they use their homes. Now the banking industry needs to move with the times and react to that.”