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Ways to increase income

This content applies to England & Wales

Ways to increase income for mortgagors in financial difficulty.

When advising a client with mortgage arrears, advisers should first identify the reasons for the payment difficulties (eg redundancy) and assess whether it is a long-term or short-term problem. The borrower will need to take action to increase her/his income and prioritise outgoings.

Increasing income

A borrower who is experiencing payment difficulties could consider ways of increasing her/his income to make the mortgage more manageable by:

  • checking entitlement to welfare benefits generally, and help with mortgage interest payments in particular (for more information see Support for mortgage interest)
  • trying to find a better paid job, if appropriate
  • reducing any non-priority unsecured debts to a minimum
  • drawing up a detailed list of her/his income and expenditure to highlight where expenditure could be reduced
  • letting out a room.

Letting a room

One option for borrowers is to let out a room in her/his home, although it may be necessary to get the lender's approval before doing so.

Any rent that is received is income, as such it can affect the level of any income tax paid or welfare benefits received.

Income tax

Under the Government's 'Rent a room scheme' no income tax is paid on the rent if:

  • the tenant/licensee lives in the same property
  • the room rented out is furnished, and
  • the rent received is not more than £7,500 a year (prior to the tax year 2016/17 it was £4,250)[1].

Further information about the rent a room scheme can be found from Gov.uk.

Benefits

If the client is in receipt of income support, income-based jobseeker's allowance, housing benefit or pension credit, the first £20 per week of the rent received is disregarded when calculating her/his income.[2] If some meals are provided as part of the rental charge half of any rent above £20 per week will also be disregarded.[3]

If the client is in receipt of universal credit only rent received over £7,500 a year will affect the amount of benefit received.[4]

Council tax

If the client formerly lived alone, on renting out a room s/he will no longer be entiled to a single person discount of 25 per cent.

[1] s.789(4) of the Income Tax (Trading and Other Income) Act 2005 as amended by Income Tax (Limit for Rent-a-Room Relief) Order 2015 SI 2015/1539.

[2] para 19, Sch.9 Income Support (General) Regulations 1987 SI 1987/1967; para 20, Sch.7 Jobseeker's Allowance Regulations 1996 SI 1996/207; para 22, Sch.5 Housing Benefit Regulations 2006 SI 2006/213; para 22, Sch.4 Council Tax Benefit Regulations 2006 SI 2006/215.

[3] para 20, Sch.9 Income Support (General) Regulations 1987, SI 1987/1967; para 21, Sch.7 Jobseeker's Allowance Regulations 1996 SI 1996/207; para 42, Sch.5 Housing Benefit  Regulations 2006 SI 2006/213; para 23, Sch.4 Council Tax Benefit Regulations 2006 SI 2006/215.

[4] reg 66(1)(m) Universal Credit Regulations 2013 SI 2013/376.

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