Serviced Accommodation Mortgage
Up to 80% Loan to Value (LTV)
Contractor Lets
Airbnb Lets
Serviced Accommodation Mortgage Specialists
Serviced accommodation mortgages are used for properties let on a short-term basis to guests, contractors, or other temporary occupiers rather than long-term tenants. Because lenders assess pricing, valuation, and affordability differently for this type of use, understanding how serviced accommodation is underwritten is essential before selecting a mortgage product.
Serviced Accommodation Mortgages Require Correct Structuring From the Outset
Serviced accommodation mortgages must be structured correctly from the start to avoid valuation issues, underwriting problems, or lender declines. Lenders assess factors such as property use, loan-to-value, booking income, location, and whether the case fits holiday let, short-term let, or commercial-style criteria.
Specialist Support for Serviced Accommodation Mortgage Applications
We assist borrowers arranging mortgages for serviced accommodation properties, including first-time operators and experienced investors. Our service helps identify lenders whose criteria align with short-term letting models, affordability method, property type, and investment strategy.
Understanding Loan-to-Value Ratios (LTVs)
One of the fundamental concepts in property financing is the Loan-to-Value ratio (LTV). The LTV ratio is a measure used by lenders to express the ratio of a loan to the value of an asset purchased. It is a critical determinant in serviced accommodation mortgages as it influences the amount of capital an investor can borrow relative to the property’s value.
For serviced accommodation mortgages, LTVs typically range from 65% to 75%. This means that lenders are generally willing to finance between 65% and 75% of the property’s purchase price or value. For example, if a property is valued at £500,000 and the lender offers a 70% LTV, the maximum loan amount would be £350,000. The investor would need to provide the remaining £150,000 as a down payment.
Higher LTV ratios are advantageous for investors as they reduce the initial capital outlay required. However, lenders offering higher LTVs may impose stricter lending criteria and higher interest rates to mitigate the increased risk. It is essential for investors to balance the desire for a higher LTV with the financial implications of potentially higher borrowing costs.
Experience Not Required | New Investors
One of the appealing aspects of serviced accommodation mortgages is that prior experience in property investment is not always a prerequisite. While traditional buy-to-let mortgages often favour seasoned landlords with a track record of successful property management, many lenders in the serviced accommodation market are more accommodating.
Lenders recognise that the serviced accommodation sector is unique, with its own set of dynamics and revenue streams. Consequently, they may be willing to work with novice investors, provided they demonstrate a robust business plan and a thorough understanding of the serviced accommodation market. This inclusivity makes serviced accommodation an accessible investment option for those new to property investment.
However, first-time investors must be prepared to present a comprehensive and convincing proposal to potential lenders. This includes detailed financial projections, market analysis, and a clear strategy for managing the property. Demonstrating knowledge and preparedness can significantly enhance the likelihood of securing financing.
Serviced accommodation mortgages and the 90 day rule
The 90-day rule is a regulatory limit imposed by some local authorities, particularly in major cities, restricting the number of days a property can be let out on short-term rental platforms such as Airbnb within a calendar year. Typically, the cap is set at 90 days, the 90-day rule is specifically prominent in London. This rule is designed to help manage the availability of residential housing and mitigate the impact of short-term rentals on local communities.
For investors with serviced accommodation mortgages, this rule can significantly impact mortgage options and investment strategies:
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Reduced Rental Income: The limitation on the number of days the property can be rented out may reduce potential rental income, affecting the property’s profitability. This can make the investment less appealing to some lenders or lead to stricter lending criteria.
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Mortgage Approval: Lenders may perceive properties affected by the 90-day rule as higher risk. This perception could lead to more cautious lending, possibly requiring higher deposits, offering lower loan-to-value ratios, or imposing higher interest rates.
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Investment Strategy: Investors need to consider their strategies carefully. They might need to plan for alternative uses of the property during unrented periods or explore renting the property for longer terms outside the short-term rental market.
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Regulatory Compliance: Investors must ensure compliance with local regulations, as non-compliance can lead to fines or legal issues, which could further complicate mortgage agreements and property management.
Understanding the implications of the 90-day rule is crucial for anyone considering a mortgage for serviced accommodations, as it directly affects the financial viability and regulatory compliance of the investment.
Affordability Assessments | A Dual Approach
A critical aspect of securing a serviced accommodation mortgage is the affordability assessment. Lenders need to be confident that the rental income generated by the property will cover the mortgage repayments. Affordability assessments for serviced accommodation mortgages can be conducted using two primary methods: based on serviced accommodation rental figures or on market Assured Shorthold Tenancy (AST) rental income.
Market AST Rental Income
In some cases, buy to let mortgage lenders may assess affordability using the market AST rental income. This method evaluates the rental income that could be generated if the property were let on a long-term basis, typically through an Assured Shorthold Tenancy (AST). The AST rental income is generally lower than serviced accommodation income, which can create affordability challenges for high-value properties.
For instance, a property that can generate £4,000 per month from serviced accommodation might only yield £2,000 per month under an AST. If a lender bases its affordability assessment on the lower AST income, the investor might qualify for a smaller loan amount, potentially limiting their ability to finance high-ticket value properties.
Serviced Accommodation Rental Figures
For serviced accommodation mortgages, lenders often base their affordability assessments on the anticipated income from short-term lets, we mostly see this method with Commercial Buy to Let mortgage lenders. This approach acknowledges the typically higher rental yields that serviced accommodation properties can achieve compared to traditional long-term rentals. Lenders may require detailed projections of occupancy rates and nightly rates to estimate the potential income.
This method is advantageous for investors, as the higher income potential from short-term lets can support larger loan amounts. However, lenders will scrutinise these projections carefully, considering factors such as location, demand, and seasonality. Accurate and realistic income estimates are crucial to passing this affordability assessment.
Given the potential for discrepancies between serviced accommodation income and AST rental income, investors must navigate these challenges strategically. One approach is to work with lenders who specialise in serviced accommodation mortgages and are willing to base their assessments on the higher short-term rental figures. These lenders are more attuned to the unique dynamics of the serviced accommodation market and can offer more favourable terms. For more information on Serviced Accommodation mortgages, speak to one of our expert brokers at Mortgage Lane.
Airbnb marketing
When considering mortgages for serviced accommodations listed on platforms like Airbnb, we provide a broad range of lending options through diverse lenders, including traditional banks and specialist mortgage providers. These lenders offer tailored mortgage products designed to accommodate the unique profitability and regulatory requirements of short-term rentals, such as marketing methods like Airbnb. Our offerings include flexible criteria to handle the variable income from short-term rentals and competitive rates and terms to maximise investment returns. Additionally, our lenders are well-versed in the specifics of the serviced accommodation market, ensuring that investors can not only secure financing but also remain compliant with local regulations, making the investment process both efficient and compliant.
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QUESTIONS ON SERVICED ACCOMODATION MORTGAGES
A Serviced Accommodation Mortgage is a type of financing specifically designed for properties intended to be used as short-term rentals, such as vacation homes or serviced apartments. These mortgages consider the unique revenue streams and occupancy rates associated with short-term letting.
Get in touchLTV ratios for Serviced Accommodation Mortgages typically range from 65% to 75%, meaning lenders will finance 65% to 75% of the property’s value. The remaining amount must be covered by the borrower.
get in touchLenders assess affordability by evaluating the potential rental income from short-term lets. This includes analysing projected occupancy rates and nightly rental rates to estimate total income.
get in touchTypically, you will need proof of income, a detailed business plan, market analysis, property details, and sometimes, historical rental income data if the property has been previously rented.
Get in touchInterest rates can be higher due to the perceived risk associated with short-term rentals. However, this varies by lender and individual borrower profiles.
Get in touchLenders will consider seasonality and potential fluctuations in occupancy rates. You may need to provide a conservative estimate that accounts for off-peak periods.
Get in touchThe approval process can vary but typically takes between 4 to 8 weeks. This timeline depends on the complexity of the application and the responsiveness of the borrower in providing required documentation.
get in touchUnlike standard Buy-to-Let Mortgages, which are based on long-term rental income, Serviced Accommodation Mortgages take into account the higher income potential from short-term rentals. This can result in higher loan amounts and different eligibility criteria.
Get in touchYes, many lenders offer Serviced Accommodation Mortgages to first-time investors. However, you will need to present a robust business plan and demonstrate an understanding of the market.
Get in touchYes, if a lender uses the market AST (Assured Shorthold Tenancy) rental income for affordability assessment, it might limit the loan amount since AST rental income is typically lower than short-term rental income.
Get in touchLenders consider the property’s location, market demand, potential rental income, the borrower’s credit history, and the robustness of the business plan.
Get in touchYes, with the appropriate permissions and licenses, a residential property can be used for serviced accommodation. However, you will need to inform your mortgage lender of the intended use.
get in touchYes, refinancing is possible. You can switch from a standard Buy-to-Let Mortgage to a Serviced Accommodation Mortgage if the property is being used or will be used for short-term rentals.
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