Four things to be aware of with short-term lets
In the last few years, companies like Airbnb and Couchsurfing have established themselves online across the globe. Essentially, they are short-term letting services that allow people to advertise either their spare rooms or full flats/houses. Is renting short term a better option that having long term tenants in situ?
With Airbnb, for the most part it acts as an alternative form of accommodation to hotel chains when travelling to a different city. Personally I think the moto of, “live like a local” is a very clever marketing message and they are truly starting to compete with the monopoly of hotels. I have used the website for trips and been impressed with the standard of accommodation on offer.
On the face of it, the benefits of companies like Airbnb are plain to see. An underutilised housing asset is converted into a source of added income, and it is marketed to an international audience. There is the potential to turn a spare room into a few extra thousand pounds a year, not too shabby right?
However, offering short-term lets can often create challenges for home owners and landlords. I have read a few horror stories in recent months that ended with the sentence, ‘and the final cost of the repairs was’
80,000 British home owners are currently earning income from renting either part or all of their homes with Airbnb. With the number doubling by the year, what are the important aspects to be aware of for home owners and landlords when it comes to short-term letting?
1. Mortgage Risks
Many mortgage providers do not look kindly on the subletting of properties. If you do not have permission to let a room, or the entirety of your property, you could be running the risk of voiding the terms of your mortgage. In the worst case scenario, this could lead to a lender calling in the full repayment.
Market Harborough building society are currently one of the only lenders on the market who will allow consent for short-term letting, so it is well worth checking with your mortgage company. Market Harborough will allow hosting for up to 24 weeks a year for an increased rate of 3.99% if you seek consent. Don’t risk a potential fine or increase in mortgage rate, ask the question!
2. Home Insurance
Do you know what your home insurance provider’s stance on subletting and home-sharing is? This is another area where home owners should proceed with caution. Insurers have differing attitudes within their policies. Churchill have said that home owners would risk invalidating their insurance, where as with Aviva, most home owners would be covered.
Don’t risk voiding your insurance, check your policy before you might need to make a claim. Some insurers have started to catch on to this new short-term letting trend and are now offering add-ons to existing arrangements.
3. Subletting tenants
For landlords, sites such as Airbnb could bring up a host of other challenges. Could your tenants be subletting your property? I’m all for tenant ingenuity, but these sites could bring up cause for concern. Why? If you have people short-term renting your property without your knowledge or consent how do you know they have been properly vetted?
As you may already know, subletting can bring up a few issues. What liability do you have for these ‘tenants’? What if they decide not to leave the property? The possibilities could go on…
Yes, tenants risk eviction and paying compensation but the risks for the landlord are also serious. A landlord can be fined by their local authority for not having the relevant license in place. Landlords’ insurance could be invalidated and properties let out for more than 90 nights a year might need planning permission. This is something that you should definitely keep an eye on.
One such cautionary tale reported in the press is of Richard Johnstone, a professional landlord from Cumbria who lets out a property in London. He found out the hard way when he arrived at the London property one morning to find a group of people staying there who were not the contracted tenants. Once he established the locks had been changed, there was extensive damage inside and drugs were being sold at the property, it then cost £7,000 to bring the house back to a habitable standard. Read the full story here.
The important thing to bear in mind is to make sure you have a no subletting clause in the contract. Even better, spell it out in black and white with specific examples of websites such as Airbnb as not to be caught short. If the contract does not have these clauses, landlords could end up being held responsible, so remember to be vigilant. If you are a tenant, remember to ask permission first or consult your tenancy agreement.
4. Time Lost
Becoming an Airbnb host will almost definitely have an effect on the most valuable commodity of all, time. On average, an Airbnb host will spend eight hours a week prepping and managing a property. Sheets and towels will need to be washed prior to each new arrival. You may also become the ‘concierge’ service for your tenants during their stay with questions such as where to eat, what to do, directions etc. It is definitely a less passive way of making an income from your property.
Whilst short term letting can appear to be a lucrative way to make money from property, the risks are higher than with longer term agreements. If you have a property and would like some market advice on current rental values and property prices, pop in to your local branch today or for a call back complete our online valuation request.