Take a long-term view on short-term lets

Take a long-term view on short-term lets

Last year, there were 179,034 London properties listed for rental on Airbnb.

This was a 54% increase on 2016 and, so far, this year the number of listed properties has already exceeded 197,000, according to Airdna, a useful website that drills into the data of every Airbnb listing in the world. 

Airbnb is just one marketing platform, but it’s clear that an increasing number of investors are turning to shorter lets as a way of generating better returns.

For example, a new two-bedroom flat in Canada Water, south London, would typically be available to rent for around £1,800 a month on an assured shorthold tenancy (AST) which means that, at full occupancy, it could generate £21,600 in revenue over the course of a year. 

A similar property in the same area could achieve around £150 a night by being let on a short-term basis. Assuming a 70% occupancy rate – which is the London average according to Airdna – that property could generate £38,325 over the course of the year, which is a 77% increase on the amount it could achieve on a standard AST. 

It is important to note that this figure is before expenses and that the costs of running a short-term let are considerably higher than a standard buy-to-let given that the high turnover of occupants means larger cleaning, maintenance and marketing fees. But, even accounting for these, the comparable returns on a short-term let are still impressive.

With so many investors drawn to these returns, you need to ensure that your clients have the appropriate product for the way they intend to let the property, as short-term lets and standard buy-to-let are two distinct categories.

The PRA’s supervisory statement on underwriting standards in buy-to-let states that an agreement to dwell in a property for less than one month is not occupation on the basis of a rental agreement, which means that mortgages for short-term lets are not restricted by the same rules that govern buy-to-let.

Short-term lets also have different tax considerations to buy-to-let as they are treated as a trading business, although stamp duty land tax on both still carries a 3% surcharge.

And, perhaps most importantly, a standard buy-to-let mortgage will generally require that the property is let on an AST, which effectively excludes it from being used for short-term rentals through Airbnb or similar platforms. Borrowers with a standard buy-to-let mortgage who choose to rent their property on short-term lets could, therefore, be in breach of the conditions of their mortgage and, as such, committing fraud. 

Needless to say, this is not a position that you want to be in with one of your clients so, with the growing popularity of short-term lets, it is worth taking the time to understand how they intend to rent the property and making sure you recommend a suitable product. Taking a long-term view to short-term lets will protect both you and your client.

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