Is AirBnB classed as buy-to-let?

In recent years, there has been a stampede of landlords switching from long-term lets to potentially more lucrative short stay rentals – sparked in large part by the growth of Airbnb and similar websites.

Research conducted for ARLA Propertymark, the professional body for letting agents, showed that, by 2020, 50,000 properties had already moved from the long-term rental market to short stay lets, with 10% of landlords likely to follow suit.

But what are the implications for landlords making the switch? Is Airbnb classed as buy-to-let for the purposes of mortgages and insurance, and are there any other financial implications?

Here’s what you need to know.

• Why are short stay lets becoming more appealing to landlords?
• What are the typical yields on Airbnb rental properties?
• Can I rent my property out as an Airbnb with a standard mortgage?
• Will standard buy-to-let landlord insurance cover me for my Airbnb rental?
• Does Airbnb offer free insurance?
• Are there tax advantages on an Airbnb let compared to buy-to-let?
• Why is the 90-day rule important?

Why are short stay lets becoming more appealing to landlords?

Traditional buy-to-let landlords have faced a range of regulatory changes in recent years, with potentially more to come, making the Airbnb and short stay let market appear a much more attractive proposition for many landlords.

The main reasons landlords have, or are considering, switching include:

• higher stamp duty for additional properties;
• the removal of mortgage tax relief on buy-to-let rentals;
• greater flexibility;
• potentially increased profits;
• the planned removal of ‘Section 21’ no-fault evictions from buy-to-let rentals.

Landlords with properties in high demand locations, such as London, coastal areas like Devon and Cornwall, and other tourist destinations, are increasingly looking to switch to short stay lets to maximise their investment.

However, in some locations there are restrictions on the number of days per year you can rent out your property as a short stay let (more on this later), and you may need permission from any freeholder of your property, and the local council.

What are the typical yields on Airbnb rental properties?

Profits from short stay lets vary widely across the country, with average yields around 9.8%, equating to £23,000.

The highest yields tend to be in areas with relatively less expensive properties combined with high demand for visitors, including coastal areas in Wales (31% – 34% yield) and Yorkshire (30%), and cities like Newcastle and Liverpool (27%).

Check out our guide and rental yield calculator.

Can I rent my property out as an Airbnb with a standard mortgage?

The first thing you must do if you have a standard residential mortgage and choose to rent out your property is to inform your mortgage provider. Failure to do so would put you in breach of your mortgage conditions and, strictly speaking, guilty of mortgage fraud.

If you fail to inform your mortgage provider, your lender can call in your loan and demand that you immediately pay it off in full. They can also fine you, raise your rate, or put a black mark on your credit record, making it more difficult to get a mortgage in future.

However, assuming you have followed the correct steps, in some cases you may be able to keep your standard mortgage when renting out via Airbnb.

For example, if you are renting out a spare room from time to time, or while you are on holiday, your mortgage lender may be happy to accommodate you – though they may charge a ‘consent to let’ fee and increase your mortgage rate.

If, however, you regularly want to rent out your entire home on a short stay basis or rent out a lodge or annex on permanent short stay lets, a standard mortgage is very unlikely to accommodate this.

Do I need a buy-to-let mortgage for an Airbnb rental?

If you have a property that will be used primarily as an Airbnb rental, you will need a mortgage specifically designed for rental properties.

However, as all mortgage products include different clauses and eligibility criteria, it’s important to find a lender that understands your specific needs.

For example, a lot of traditional ‘buy-to-let’ mortgages are designed to cater for properties rented out on Assured Shorthold Tenancies (ASTs), longer lets that have a minimum duration of six months.

Some buy-to-let lenders will consider Airbnb-type lettings with a restriction on the number of days you can rent out the property in a calendar year – from 90 days to six months.

So, if you are switching from an AST to an Airbnb rental, you will need to inform your mortgage lender to ensure you are not in breach of your mortgage terms.

Are there specific mortgages for Airbnb?

As the popularity of Airbnb has grown, more lenders have – out of necessity – begun to offer mortgage products that suit this form of letting.

However, some lenders who offer mortgages on holiday homes still give Airbnb and similar platforms a wide berth, specifically excluding them from their offers.

Holiday-let mortgages that allow Airbnb rentals are likely to be the most suitable, as they are tailormade for your circumstances.

This type of mortgage typically requires a larger deposit than a residential mortgage, up to 30% of the property’s value, and rates are slightly higher because income from a holiday rental is not guaranteed like a monthly wage – and therefore riskier for a lender.

Fixed rates are available, however, and the best rates are usually available to those with a larger deposit, and who can show evidence of pre-tax rental income that comfortably exceeds the monthly repayments.

Those looking to buy an Airbnb rental home abroad can either obtain a loan from a UK lender with a presence in your chosen country, or from a local lender.

Whether you’re buying a property, letting out all or part of your own home, or converting an existing buy-to-let property into an Airbnb let, it can be worth consulting a specialist mortgage broker to make sure you get the right product with the right terms and conditions. Alan Boswell Group does not provide mortgage advice.

Will standard buy-to-let landlord insurance cover me for my Airbnb rental?

Most standard buy-to-let insurance policies exclude cover for short stay Airbnb lets, and most also exclude cover for malicious damage or theft by people who are lawfully on the property, such as renters and their guests.

If you have a standard landlord insurance policy and switch your property to an Airbnb, or short stay let, you must inform your insurer. Failure to do so can invalidate your policy.

Does Airbnb offer free insurance?

While Airbnb does provide insurance to property owners as part of their package, its cover is limited to your liability in relation to guests, and damage caused by guests.

In short, it’s not enough; you will also need cover for loss or damage caused by other eventualities, including fire, theft / burglary, storm, flood, escape of water etc, as well as public liability and loss of rent.

Do I need specialist Airbnb insurance?

It’s always best to take out a policy that is designed specifically for your exact needs, and specialist Airbnb insurance ensures you have the widest possible cover no matter how you run your short stay rental.

Airbnb insurance can cover your buildings and contents, including theft and damage by guests, as well as liability to guests and the public, plus employers’ liability insurance for any cleaners or maintenance staff, and loss of rental income should the property be uninhabitable following an insured event like fire or flood.

Specialist short stay let insurance is also flexible, providing cover for a wide range of property uses all within the same policy (and sometimes without you even needing to notify your insurer of the change of use), including:

• where part of the property is rented, and the rest is owner / host occupied;
• mixed rental types, such as properties rented as holiday accommodation during high season and AST out of season;
• year-round holiday accommodation;
• serviced accommodation, which are self-catering apartments that provide amenities, housekeeping, and other services for guests within the cost of rental;
• Properties let on a ‘rent-to-rent’ contract, where someone rents a property from a landlord before then letting it to a tenant.

Are there tax advantages on an Airbnb let compared to buy-to-let?

There are tax benefits to owning a property rented out as an Airbnb on short stay holidays compared with a standard buy-to-let rented on an AST.

Since April 2020, mortgage tax relief was scrapped for landlords renting out a traditional buy-to-let property on an AST. This means landlords cannot deduct mortgage expenses from their rent income to reduce their tax bill. It was replaced by a tax credit, based on 20% of mortgage interest payments, which is less generous than the old system for higher rate taxpayers, which effectively received 40% tax relief on mortgage payments.

The rules are different, however, for short stay lets, and landlords can still deduct mortgage payments from rental income to reduce taxable profits, as well as qualifying for Capital Gains Tax reliefs for traders. To qualify, properties must be furnished, available for let for a minimum of 210 days a year, and actually let for at least 105 days a year. Each let must be no longer than 31 days, and letting to friends or relatives free of charge cannot be counted.

See our guide to tax on rental income for more information.

Why is the 90-day rule important?

If you are considering switching from a buy-to-let to an Airbnb rental, you need to be aware of London’s 90-day rule.

Introduced in 2015, the 90-day rule means that properties in Greater London can only be let out on a short stay basis for a maximum of 90 days per calendar year.

Therefore, landlords will need to consider the returns from 90 days of short stay lets compared with renting out on a longer-term AST.

Paris has a similar, 120-day rule, while new rules have been approved in Edinburgh to introduce Short-Term Let Control Areas. Any property in a designated area will require planning permission to be used as an Airbnb-type, short stay rental.

In St Ives in Cornwall, where there is a large number of second homes, residents voted in 2016 to restrict new-build properties to permanent residents, and the people of Whitby in Yorkshire followed suit in 2022.

Other areas of the UK are considering similar restrictions, so it’s worth checking with the local authority what the exact rules are in your area.

Further reading:

Our guide to renting out a holiday let provides a comprehensive overview of what you need to know if you are considering entering the short stay let market.

Visit our landlord hub for a wealth of articles, advice and insurance products to suit every type of rental arrangement.