Buy-to-letAug 23 2018

The rise of Airbnb

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The rise of Airbnb

Who wants to book into a hotel when they go on holiday, or even rent a traditional holiday apartment when you can experience a holiday destination from the perspective of a local?

Plenty of holidaymakers are now choosing to stay in one of the many rooms, city apartments or family homes that are listed on Airbnb.

The tax firm RSM recently quoted some of Airbnb’s own statistics, which reveal £657m was earned by UK households in the year from July 2016 from the rental site – an average of £3,000 per Airbnb UK host.

It reports 55 per cent of UK Airbnb hosts rent out their entire house, while 44 per cent of Airbnb hosts rent out a room in their home.

Figures like that might make clients think about whether they could make some additional money from letting their own property or properties through the site.

Danny Belton, head of lender relationships at Legal and General Mortgage Club, doesn’t believe the concept behind Airbnb is quite as radical as many think.

Traditional property investors have begun to consider Airbnb in lower yielding areas where the combination of rental yield and increasing landlord costs have made traditional single lets less profitable.Karen Bennett

“Airbnb, in effect, doesn’t differ from traditional holiday lets, it just provides a secure platform for the property owner and the person letting the property, both in terms of payment and also confirming the identities of those parties involved,” he reasons. 

“B&Bs have been in existence in some form for a long time, as have whole property lets, and Airbnb is actually just a variation of this.”

Stuart Phillips, director of Aalto Mortgages, says: “I think Airbnb is more of a technology company. 

“Much in the same way Uber has not changed the fact that taxis are simply cars for hire, Airbnb hasn’t changed the type of property, but just made the process much more accessible and frictionless, while automating much of the process behind the scenes.”

Mike Taylor, head of products and savings at Mansfield Building Society, admits: “The rise of AirBnB is an interesting phenomenon as more people are considering a home-away-from-home accommodation style.”

Understanding the appeal

The potential income to be earned from letting a room or whole property to tourists via Airbnb is now appealing to traditional buy-to-let landlords.

Jeff Knight, mortgage director for Foundation Home Loans reports its recent study into landlord sentiment and market behaviour reveals 8 per cent of landlords intend to use some of their properties as an Airbnb in the long term.

Mr Taylor can see the appeal: “Behind any novel or unconventional approach there remains typical commercial interests for landlords and tax or affordability considerations for homeowners.”

But he notes: “There is limited availability currently from lenders that accommodate certain characteristics of a typical Airbnb letting arrangement, although recently there have been a small number of new entrants catering to this market.”

Recently, the Tipton and Coseley Building Society announced it will accept applications from borrowers who wish to list a property on the holiday lettings website.

Karen Bennett, managing director of commercial mortgages at Shawbrook Bank, says: “Traditional property investors have begun to consider Airbnb in lower yielding areas where the combination of rental yield and increasing landlord costs have made traditional single lets less profitable.”

She thinks the mortgage market has been slow to adjust but that “more options will appear as banks begin to understand the dynamics of this particular niche market”.

Mr Phillips has seen an increase in clients enquiring about buying property specifically for the purpose of letting it short term through Airbnb.

“There have been some tentative forays into the market by lenders, but they are clearly remaining cautious and ensuring that the properties will still pay for themselves if they end up being let as longer term lets, by only allowing a loan based on the six-month assured shorthold tenancy figures,” he explains.

Property pitfalls

What are the pitfalls to avoid? And how can advisers help their clients to navigate Airbnb, when it is still a fairly new concept?

Firstly, there are signs that countries, including the UK, are cracking down on the phenomenon. 

The traditional tourism industry has voiced its concerns about the holiday rentals site, while some cities believe the popularity of renting rooms via Airbnb to tourists is pushing out those residents who are looking for rental properties and rooms to live in.

Stephen Marcon, who is expat, international and overseas mortgage specialist at Connect Mortgages, suggests Airbnb is coming to authorities’ attention.

Mr Phillips agrees: “I think they need to be cautious about the potential backlash from local authorities and possible central government, concerned about the way some towns and cities become unaffordable when large amounts of housing stock is bought up as holiday homes.”

Question marks also surround how much tax is being paid by Airbnb hosts.

Jackie Hall, a tax partner at RSM, acknowledges: “Income from letting a room in your house, or even the entire property, via the Airbnb platform is primarily taxable income from property letting. 

“However, many Airbnb hosts may have previously paid little or no tax on this income as a result of ‘rent-a-room’ relief.”

She explains: “Targeted at income from lodgers, ‘rent-a-room’ relief allows gross income of up to £7,500 a year to be received tax-free on a property that is the individual’s main home.

“The legislation currently does not include any requirement for the landlord to be living in the home at the time, meaning many Airbnb hosts have made use of this relief even where their full property has been let out.”

Ms Hall points out that from 6 April 2019 an additional test will be introduced, “meaning ‘rent-a-room’ relief will only be available where the host lives in the property during the rental period”.

Tax treatment

Chris Etherington, also a tax partner at RSM, observes: “Airbnb has generated millions of pounds of additional income for UK taxpayers so it’s understandable that HM Revenue & Customs (HMRC) wants its share. 

“But while the rules have been tightened up, it isn’t bad news for everyone. Tax breaks are still available for infrequent hosts – and the most active.”

According to Ms Hall, hosts simply renting out a room in their home should still benefit from ‘rent-a-room’ relief. 

Those buying properties to rent via Airbnb should be clear that this is more like starting a new business than investing in mainstream property.Simon Heawood

“Even if they can’t, there are still some valuable tax advantages, such as relatively new property allowance which exempts those with gross property income of less than £1,000 a year, from tax on that income,” she notes.

“Those Airbnb hosts who are more active might seek to scale up their activities further so that they qualify for the special tax treatment afforded to furnished holiday lets (FHLs), which have to be let out for at least 105 days a year and be available for letting for at least 210 days.”

Tax is not the only consideration for prospective Airbnb hosts.

If the host is simply planning to list a room in the house they live in, or their family home while they are themselves on holiday, there may be a few things to check.

Host with the most

Guy Nyirenda, a partner at Coreco, suggests: “The most important thing for owners to do before letting their property on this basis is to check that their mortgage provider actually allows this in their terms and conditions. 

“Most lenders do not currently allow this, so it may be deemed a breach of their mortgage conditions and, in the worst case, could lead to a demand to repay their whole mortgage. 

“This also may invalidate their home insurance, so if any major damage occurs, their home insurance may well not cover the costs of repairs.”

Simon Heawood, chief executive of Bricklane, points out: “Those buying properties to rent via Airbnb should be clear that this is more like starting a new business than investing in mainstream property. 

“The yields on offer today can look very interesting, and there are a series of well-funded operators offering to take the management off your hands.” 

He cautions: “Potential investors should remember that even with third parties there are still significant hassles, increased wear and tear, and that there’s no guarantee that yields you can command today will be there tomorrow.”

eleanor.duncan@ft.com