Renting out the home
This content applies to England only.
Housing laws vary between England and Scotland. Get advice relating to Scotland
Moving house and renting out your own home could help to pay your mortgage and manage your debts.
Benefits of renting out your home
Renting out your home is normally only a good option if it will mean you can afford to pay your mortgage and also pay rent somewhere else. In many areas, rents will be higher than your mortgage payments, so you need to work out whether it will actually make paying your mortgage easier. This is more likely to be the case if you are willing and able to downsize or move to a less expensive area.
Getting permission to rent out your home
Most mortgage agreements do not allow you to rent out your home without your lender's permission. Check your mortgage agreement to see what it says.
If it says you need permission, it's important to get this before anyone moves in. If you don't, you could be breaking your agreement and your lender may be able to take you to court. It is not always allowed and many lenders refuse to give permission if you have mortgage arrears.
Some lenders charge a higher rate of interest if you rent out your home, so your monthly payments could increase. Contact an adviser if you have problems negotiating with your lender.
If you are a leaseholder, you will also need to check that your lease allows you to rent out the home. The Association of Residential Managing Agents (ARMA) has produced a good practice guide on the letting leasehold flats, which provides information about the issues you will need to consider.
How renting out your home affects insurance
Renting out your home may affect both your contents and buildings insurance. Some insurers will put up your premiums but you should still inform them if you want to be sure that your home is protected. If you don't, your insurance may not be valid.
How renting out your home affects tax
You normally have to pay income tax on the rent your tenants pay. If you later decide to sell your home (without moving back in first) you may also have to pay capital gains tax. This will only be the case if the value of your home has increased since you bought it. See HM Revenue & Customs website for more information.
How renting out your home affects benefits
If you are on means tested benefits such as income support or income based job seeker's allowance, they will probably be reduced if you rent out your home.
If you have a lot of equity in your home, they may be stopped altogether. This is because the rent you receive will be counted as income and the value of your home (minus your outstanding mortgage and any debts you have) will be counted as capital. However, if you live in an area where rents are high and are able to move to a cheaper area or a smaller property, renting out your home may give you more income than you would get on benefits.
Although your benefits may be reduced, it is important to inform the Benefits Agency as soon as you start receiving rent. If you don't, you will probably have to pay back any benefits that you weren't entitled to.
Responsibilities when renting out your home
If you rent out your home, you will have responsibilities as the landlord. You will be responsible for repairing and maintaining the property, and getting a valid gas safety certificate each year.
You will not have the right to enter the property without the tenant's permission. If the rent is paid weekly, you have to provide a rent book. You will also have to protect the tenant’s deposit using a Government-backed scheme.
The rights your tenant has will depend on the type of agreement you have with them. It makes no difference whether you rent the property out furnished or unfurnished.
Unless you live in the same building, the person you rent to will normally be an assured shorthold tenant. If you want her/him to leave, you usually have to give two weeks’ or two months' notice, depending on the reasons for the eviction. If they don't leave after this, you would have to get a court order. If you try to evict her/him without following the correct procedure, you would be committing a criminal offence.
The tenant will be entitled to live in your home for six months from the start of the tenancy unless s/he breaks one or more of the conditions of the tenancy agreement during that time (in which case you would need to go to court to get a possession order on the basis of that breach of obligations).
If you rent out your home through a letting agency, you still have the same legal responsibilities as any other landlord but someone else deals with the day-to-day matters. The agency will charge fees for their services, which will be deducted from the rent you receive.
What to charge tenants
The amount of rent you can ask for normally depends on what private landlords charge for similar properties in your area.
In practice, a landlord can simply ask for a rent increase or offer a new agreement, and the tenant has no bargaining power to refuse if s/he wishes to stay there. However, there are rules on when and how often this can happen.
Check local papers and shop windows to get an idea of how much landlords in your area charge. In many areas, landlords ask for a month's rent as a deposit (in case the tenant causes damage to the property or doesn't pay the rent) and a month's rent in advance. In most cases you will have to protect the tenant’s deposit using a government-backed scheme.
There is a risk that your tenant could fall behind with the rent. If this happens, you will still have to pay the mortgage and may have to go to court to evict her/him and/or get the money back. This can be expensive and isn't always successful.
