Renting out room can help you pay your mortgage. However, it comes with responsibilities and it could affect your tax situation. Furthermore, it could also affect any benefits you might be receiving.
Renting out a room can be a great way of helping to pay your mortgage and to help meet your monthly costs; particularly if you are just a couple or a single person with a spare room to let out. However, if you have young children, we advise that you apply extreme caution; in such a situation its best to only let a room to someone whom you have known for a long time and that you know is safe around your children.
Whilst most mortgage lenders would allow you to take in a lodger, providing you are a resident landlord, you should never assume that it is OK to do so; always talk to your mortgage provider. You should also check your building and contents insurance; sometimes there are clauses prohibiting lodgers and you need to consider what would happen if they were to cause damage your property.
Once you have checked that everything is in order with both your mortgage and insurance providers, as a resident landlord, you need to organise gas and electric safety checks and – if you have a lodger lined up and they are unknown to you and they’re foreign, you need to do your due diligence and check that they have the right to stay in the UK. You ideally need to see and take copies of their documentation. This could save you a lot of trouble further down the line!
Whilst not a legal requirement, we would also strongly advise that you draw up a written agreement, outlining their financial commitment such how much and when to pay as well as payment method. The agreement should also outline does and don’ts as well as the agreed rental period. Make sure that you both have signed copies of any such agreement.
It is worth knowing that if you are on any benefits, any rental income could affect what you receive; particularly JSA, ESA, income support and carers allowance. You can charge up to £20 a week before any such benefits are impacted.
The great news is that, provided you are always resident, and that the room you let is furnished, you could charge up to £625 per month (£7,500 a year) before you need to pay any tax! The UK national average cost for renting a room presently sits at £600 a month. Such an amount certainly goes a long way to helping you meet your monthly financial requirements – especially if you are a first-time buyer.
If you are a first-time buyer looking for a mortgage with the intention of letting a room out, get some independent advice from mortgage specialists, Dunham McCarthy.