The Adrian Loveridge Column – Airbnb Participants Possibly Violating Mortgage Agreement
According to a recent UK Telegraph newspaper article, almost 80,000 British home owners are earning income by renting part or all of their homes through Airbnb – ‘and this number is doubling by the year’.
The popularity of the short term rentals website was boosted further in last April’s budget when the Chancellor of the Exchequer gave a GB Pounds 1,000 tax break for people who make money out of their property. This will result in many Airbnb landlords escaping tax altogether, but apparently copious numbers of these seem unaware that this sideline rental business could lead to trouble with their mortgage lender, insurer, freeholder or local authority.
Under the heading Risks to your mortgage, the publication points out ‘Home owners letting a property directly, run the risk of invalidating the terms of their mortgage, meaning that in a worst-case scenario a lender could ask for full repayment’. The head of residential property at leading law firm, Slater and Gordon, clearly articulated that ‘Often a mortgage arrangement won’t allow you to sublet the property – so depending on the terms of the mortgage you run the risk that your mortgage company would take action’.
Bearing in mind the extra-ordinary growth of short term rental in this ‘sharing economy’ Airbnb type accommodation offering on Barbados, I believe that our banks, financial institutions, insurers and all lenders offering mortgages have a moral obligation to jointly spell out the rules.
I have recently seen whole houses being offered on websites like Airbnb, so where is the fine line of acceptance by the lender?
Certainly in Britain, there appears to be no doubt. Shawn Church of money broker firm, Private Finance stated ‘If you’re letting the entire house property, that is likely to be in breach of standard mortgage terms, and you should get the consent of the mortgage lender’. It also brings the validity of the insurance into question and whether or not that property is properly covered, if it is being used for a purpose outside normal lending criteria and being occupied by persons other than the borrower.
In fairness to Airbnb, they do offer ‘host protection insurance’, but it is currently only available in 15 countries which does not include Barbados. Did the recently signed MOU (memorandum of understanding) between the Caribbean Tourism Organisation and Airbnb take this into account?
So exactly how does the person(s) staying in a Airbnb property know if they are adequately covered by insurance including critical areas like public liability?
What research and ongoing monitoring has, or is being done by our locally based insurance companies?
Britain also has laws and regulations which are intended not to disadvantage those people genuinely trying to purchase their first home, including a requirement that anyone who lets their house out for more than 90 nights a year, requires special planning permission, which is partly intended to deter property speculation.
The Telegraph quotes that 33,715 properties are available through Airbnb in London, with more than half being entire houses or flats and 65 per cent of which are available for more than 90 nights a year, which seems to make an absolute nonsense out of self regulation.