Airbnb-style lets the new buy-to-let for landlords?

By Jon Salisbury, managing director at Ortus Secured Finance

With the rise of Spotify and Netflix, the sharing economy has long been seen as the way forward in today’s market.

This is also true for buy-to let landlords, who are increasingly using Airbnb-style short-term lets in the hunt for higher yields among slow rental growth in UK residential property.

There is a considerable upside for this Airbnb-style letting. Current data from Zoopla shows that the average rent for a one-bed flat in London is £1,673 a month, while just a single private room on Airbnb can fetch over £700 with just 50% occupancy.

As rents continue to decrease, Airbnb-style lets look even more attractive to buy-to-let landlords.

Short-term letting through online platforms give landlords increased flexibility in choosing how long they rent properties out for – it can be anything from one night to a few months. This means that any lets can fit around the landlord’s lifestyle.

Many landlords are looking to enter this market by getting funding to increase their current property portfolio or converting existing assets. Research from the Residential Landlord Association shows that the number of buy-to-let investors renting on Airbnb saw a 54% increase between February 2016 and March 2017.

People are choosing short-term lets instead of hotels because of the greater choice on offer in terms of location. Customers can find properties in the heart of tourist centres, off the beaten track or near family and friends. Locations outside of the usual hotspots can actually benefit potential landlords as they can offer a service in locations other businesses cannot reach.

However, buy-to-let landlords can find it difficult to fund this style of letting. Mortgage providers often see lending for Airbnb-style letting as a risky option, certainly riskier than a traditional buy-to-let. Income from Airbnb-style lets is inherently more sporadic and seasonal in nature.

Landlords might need funding to increase the size of their portfolios or to renovate their current properties to make them more attractive to would-be letters. This might involve fitting a new kitchen or expanding the size of the bedrooms.

This is where alternative finance providers can help fill the funding gap. These providers can work more closely with potential clients than mainstream lenders and can therefore determine if a landlord has the right experience and strong business plan to be considered for a loan.

As 2018 continues at pace, buy-to-let investors face a highly competitive market and slowing growth in rental prices. As a result, expect to see more landlords taking on short-term lets for higher returns.