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  • Short Term Rentals

    Serviced accommodation - guide & pitfalls



    Serviced accommodation is an increasingly growing trend in the property sector, and, as such, is attracting many trainers and mentors who claim to know how to generate massive cash flow.

    The bottom line is that serviced accommodation is generally only legitimately possible on freehold houses or leasehold flats where there is no caveat on the lease that forbids this activity and where the property is unencumbered or has specialised financing.

    London is subject to the 90 day rule. 

    Starting in January 2017, Airbnb now automatically limits the availability of ‘entire home’ listings in the Greater London area to 90 nights per calendar year.

    Simply put, if you put a whole property on Airbnb, you are allowed to have guests stay for a maximum of 90 nights a year – Airbnb even has a handy ‘nights booked’ counter so that you can see how many nights you have left.

    Once you have reached your limit, Airbnb will automatically close your calendar for the rest of the dates in that year, and guests will not be able to stay in your property unless their booking dates fall within the next calendar year.

    Find out more about the 90 day rule 

    Related discussion: How London planners view Serviced Apartments

    The main compliance issues with undertaking serviced accommodation are:

    1.  Mortgages

    If you have a BTL or residential mortgage on your property, it will be mortgage fraud to allow the property to be let as serviced accommodation. You could contact your lender and ask for permission though.  There are a handful of lenders who will give you a form of "consent to let".



    Otherwise you need a specialist mortgage product.

    From Lisa Orme's helpful guide to serviced accommodation finance:

    To a lender serviced accommodation is classed as a trading business NOT an investment and as such while a couple of commercial lenders will consider them it’ll be on a trading loan not an investment loan.

    A few things to bear in mind; these loans are usually more expensive, often on a repayment basis and crucially lenders will be looking for trading experience by way of accounts/books.

    Lisa has a commercial lender that will consider them if you’ve a good background in lettings generally and the properties are in an area where there’s strong B2L demand as a back up plan. Max LTV is 65% on a repayment basis and rate is approx 6%.

    Typical rates are around 8%.

    2.  Insurance

    You will need specialist insurance including public liability insurance.

    Our insurance partner, Alan Boswell Group can assist you with this on 01603 649736.

    3.  Leasehold flats

    As mentioned above, this type of activity is prohibited by most leases.  You will need to check your lease and/or speak to the management company to ask if it is allowed. If it is, you may have to pay an annual sub-letting fee.

    Other issues:

    1.  Fraudulent bookings

    See the interview with Ivo below. 

    2. Adult sex workers & pop up brothels

    There is an increasing trend for pop-up brothels in serviced accommodation. 

    Whilst brothels per say are not illegal, you need to be aware of them as sex traffick-ing may be involved and most people would not wish to get involved with such activity.

    Typically pimps rent properties via Air BnB and booking.com and turn them into temporary sex dens, often for just one week. This is why it is important to meet guests and check them in.

    The gangs then move onto a different address, to avoid police detection.

    In Swindon, an estimated 30 temporary knocking shops are opening every week. While 14 pop-up brothels have been discovered in Newquay, Cornwall, in just six months.

    In Bournemouth 70-year-old Christy Norman was prosecuted for helping to run a secret brothel after a customer keeled over and died on the premises, alerting cops.

    Landlords have been warned to be on their look-out for the gangs.

    Find out more about this trend 

    3.  Parties

    Some short term rentals are hired for large parties that can cause damage and cause disruption to neighbours.

    At the Property Investor Show, I spoke to Ivo of WinnwInnKeeper for his views on the sector:



    With the growing trend of Rent to Rent serviced accommodation, these issues are amplified.

    It is my personal belief that a lot of people are going to be burned by entering into serviced accommodation, especially via the wealth creation industry where some trainers do not advise the pitfalls.  Solicitor Giles Peaker has some actual examples in this video:



    It requires systems, security protocols, reliable cleaners, to name but a few things.  There are many scams originating around it so operators have to be on their guard.

    SEE ALSO  -          Short term letting strategies - differences

    UP NEXT -              Air BnB and serviced accommodation - the reality

    DON'T MISS -         Air B n B of BTL flat in London

    NOW WATCH:


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    "Typical rates are around 8%"

    " Max LTV is 65% on a repayment basis "

    I think these two are now out of date rates have fallen and ltvs have risen - as more entrants get in on the mix.

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    _________________________________________________________________________


    My posts are not financial advice, just a rambling guy passing time on a coffee break.
    The team at Bespoke Finance offers advice, including Limited Company Buy-to-Let , HMO Conversion and Cheap Life Insurance.

    _________________________________________________________________________

    Hi Adam

    With specific regard to 'AirBnB'-style mortgages, the market is very limited.  We're not looking at holiday let mortgages (where indeed rates are lower and LTV's are higher), but for 'host contracted' lettings, and in particular where the property is not your main residence too, it is indeed more of a commercial trading entity and so commercial rates and LTV's do seem to apply.

    Because the property is not being advertised directly to the market (ie it is being advertised VIA the 'AirBnB'-style manager), so the lenders are far less happy with this scenario and many have stipulated that they will simply not entertain this type of lettings. 

    We know of a very small handful of lenders who will allow someone to rent out a room - in the borrowers own home - on an 'AirBnB'-style basis on traditional mortgage rates (ie low rates and higher LTV's, and even where eligible on interest only too), but otherwise and until such time that the market is settled, the commercial rates do apply in most circumstances.

    When advising my Clients, I highlight that, on a 'peace of mind' note, albeit BTL mortgages are deemed cheaper than commercial finance, it's all about the eligibility of the deal and complying with the mortgage terms and as long as the right mortgage is in situ, that we then all sleep well at night without fear of punitive repercussions.

    Vanessa highlights the numerous ways that 'AirBnB'-style lettings can fall foul of lender and other terms, conditions and regulations and in my opinion, it's not about BTL rates vs commercial finance rates but instead absolutely about legitimate enterprise.

    I know you concur and I do not infer that you would suggest otherwise, and my comments here are for the whole readership.

    On a final note;  all lenders who do lend in the 'AirBnB' style lettings space, are indeed on our panel :-)

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    Thanks for commenting Adam.

    The information was taken from Lisa's blog - dated July 2016.  I did not notice that, so thanks for the up-date. Smile

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    No problem - just looked through case history.

    The last AirBNB approved mortgage we did was 1% discount tracker, the rate was 4.49% at 70% LTV.

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    _________________________________________________________________________


    My posts are not financial advice, just a rambling guy passing time on a coffee break.
    The team at Bespoke Finance offers advice, including Limited Company Buy-to-Let , HMO Conversion and Cheap Life Insurance.

    _________________________________________________________________________


    I would suggest that the vast majority  of AirBnB is

    Illegal

    Contravening lender conditions,

    Contravening insurer conditions

    Contravening council tax conditions

    Contravening planning regulations

    Contravening leasehold conditions

    Contravening  tax regulations

    Contravening HB regulations

    Contravening JSA benefit regulations

    Contravening anything else I have forgotten

    So basically the AirBnB business model is based on fraud! !!

    Nobody is doing anything about it.

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    There are being things done about it imho.

    Also, the hotel industry, which is a very lucrative industry, is suffering and hotels will be putting pressure on Government to reduce this kind of activity.

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    What info are you aware of that AirBnB is not resulting in all the contraventions I have mentioned.

    Councils won't even do anything about beds in sheds what chance finding out an occasional visitor!

    Just as LL  are undercut by accidental LL  using  resi mortgages without CTL and not declaring to HMRC we have as you intimate the hotel industry being undercut by fraudulent AirBnB.

    I just don't see how regulations  can be enforced.

    Councils and Govt is just not sophisticated  enough to detect fraudster AirBnB.

    I feel really sorry for the hotel  and short stay providers.

    The supposed gig economy is largely based on fraud.

    Like Uber drivers being allegedly self employed to AirBnB letting rooms out in breach of lender and many other conditions.

    Such a gig economy erodes the tax base to the vast detriment of the UK population

    To then rub salt into the wound these corporates don't pay much tax in the UK.

    AirBnB paid £188000 on £675 million of turnover!!!

    Hotels will go out of business or pay much reduced tax on their reduced profits.


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    Very useful article here about funding of serviced accommodation.  It was written in December 2016, so things may have changed in terms of the number of specialist SA mortgages available. However, using BTL mortgages for short term rentals is still a bad idea.

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    market harborough building society allow airbnb and the rates are 4.49

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