Why Are Lenders Hesitant About Holiday Lets?

Firstly, if you want to buy or remortgage a property that is let as a holiday let or via a site such as Airbnb then you can. However, if you are then it is worth trying to understand why some lenders are hesitant about mortgaging a holiday let.

Let’s have a look at some of the reasons why mortgage lenders can be hesitant.

Regulatory and Legal Uncertainty

Airbnb of holiday let regulations vary widely by location, and they can change frequently such is the case with the new planning class for holiday lets. This uncertainty can make it difficult for lenders to assess the risk associated with these properties.

Income Reliability

Before anyone tells me that the yield on short term lets is higher than a standard AST, remember this article is looking at why lenders are hesitant, there is a difference. With traditional long-term rentals, there’s a stable monthly rental income that can be used to justify a mortgage is affordable. However, Airbnb income can be variable and seasonal, making it less predictable. Lenders may be cautious about relying on this income source, remember that lenders like stable, regular, predictable etc.

Wear and Tear

Short-term rentals, including those on Airbnb, often experience more wear and tear compared to long-term rentals. Frequent turnover of guests can lead to higher maintenance and repair costs, which can impact the property’s value and the borrower’s ability to maintain the property in good condition. Remember that when a lender takes possession of a property due to default it is probably already going to be in an under maintained condition.

Risk of Default

Lenders may perceive higher risks associated with Airbnb properties, such as the possibility of inconsistent rental income, vacancies, or disruptions due to negative guest experiences or changes in Airbnb’s policies. These risks could potentially lead to a higher likelihood of default on the mortgage at no real fault of the borrower. Yes, the yield is higher but we are talking about lenders in grey suits.

Limited Lender Experience

This one is changing. Mortgage lenders may have limited experience with underwriting and servicing loans for Airbnb properties, which can make them cautious. They may prefer to focus on traditional long-term rental properties with a more established track record and a sector they know inside out. This is changing though and we are seeing more lenders accept short term lets, but don’t assume they all will.

Don’t assume that lenders will never know if you are using a property for a holiday let, even if you never mentioned it when you took out the mortgage. There is some good software these days that picks up on lettings and adverts. You can finance a holiday let purchase, so it is worth doing right from day one. (we love financing these types of property!).

Any questions or you want more info then get in touch.

By Dave Farmer