Will my mortgage lender allow me to take on a lodger?
The recent cost of living surges have made a lot of us re-think our finances. Can we afford all those streaming services? Are our avocado toast days…well…toast?
With all of the signs suggesting the cost of living isn’t reducing anytime soon, we look at an increasingly popular topic of discussion:
Will my lender permit me to let out my spare room?
Letting out a room to a lodger is a popular way of easing some of the pain of rising household costs. And having another person around the home is a welcome contrast for a lot of us emerging from the solitude of the Covid lockdown years.
But the important thing to remember if you’re considering this option is to firstly make sure that you’re still complying with the terms your mortgage lender set out in your contract.
Not all mortgage lenders are happy for you to let a room to a paying tenant. Others may have certain rules – such as the number of rooms in your home that may be let out, or whether the tenant needs to sign anything waiving their rights to reside if the lender ever needed to repossess the property. Some lenders require there be no tenancy agreements to be in place, or for any lodger agreements to be open-ended, in order to protect both the owner and the bank. So it’s a good idea to approach your lender and find out what their specific rules are as your first step.
Will my mortgage payments change?
Assuming that your lender agrees to it, letting out a room to a lodger won’t have any impact on your mortgage interest rate or monthly payments; you’ll simply continue with your normal payments and mortgage product. The only time that this could change is if you moved out of the property altogether – in which case you’d need to apply for a “Consent to Let” agreement, or remortgage onto a proper Buy to Let mortgage product.
What about the Homes for Ukraine scheme?
Another popular question is whether a lender will consent for you to let out a room under the Homes for Ukraine scheme. Again, it’s important to check with your specific lender but the good news here is that, according to Gov.UK “lenders have committed to enable as many borrowers as possible to participate in the scheme”. The majority of lenders announced they’re in support of the scheme, so if you decide that it’s right for you, providing a safe haven for a Ukrainian refugee shouldn’t be an issue.
Aside from dealing with your mortgage lender, there are a few other parties worth speaking to, as well. For example, you will need to notify your home insurance provider if letting your spare room to a paying lodger. With the Homes for Ukraine scheme, the Association of British Insurers made a statement confirming that “if you are temporarily housing refugees displaced by conflict as non-paying guests, you do not need to inform your insurer and your cover will remain the same”. They do go on to say that this is for 12 months, and after that you’ll need to contact your insurer to let them know.
Where you’re receiving a new income, it’s important to make sure that you don’t fall foul of HMRC’s rules, too. You can benefit from the Government’s Rent a Room scheme whereby you can earn up to £7,500 per year tax free under the scheme. However if your lodger income exceeds this figure, you may be liable to pay tax on some of the rental income. Either way, you’ll need to declare the income to HMRC on a self-assessment return, even if there’s no tax to pay.
Furthermore, if you own a leasehold property, you’ll need to check to ensure that there is nothing preventing you from letting out a room in your home in the terms of your lease agreement.
If you’ve decided that letting out a room is for you, consider using a dedicated platform to advertise your home – for example SpareRoom, OpenRent or similar. These websites will usually have moderators screening ads and content, and provide a message board to speak with prospective tenants – meaning you won’t have to share personal contact details with strangers over the internet! They also have a lot of useful resources – for example screening/vetting services, template tenancy agreements, etc. Usually at an additional cost, of course.
Helen Peel – 16th June 2022