Taking in a lodger if you have a mortgage

Renting out a room in your home could help you deal with mortgage arrears. It might affect tax you pay or any benefits you receive.

Permission to rent out a room

You don't usually need permission to take in a lodger if you own your own home.

Check your mortgage agreement or lease. It might say that you must tell your lender or freeholder if you take in a lodger.

If you do need permission, it's important to get this before anyone moves in. If you don't, you are breaking your agreement. Your lender or freeholder could take you to court.

Most mortgage agreements and leases say that you can't sub-let your home or any part of it without permission. Taking in a lodger is not sub-letting.

For more information, see the Gov.uk guide Letting rooms in your home.

Right to rent immigration check

You must check that any new lodger has the right to stay in the UK and the right to rent. You are breaking the law if you don't.

Find out more about right to rent immigration checks.

How renting out a room affects benefit claims

If you receive income support or jobseeker's allowance, your benefits are reduced if you rent out a room.

It can still be worth renting out a room. You usually get more income from the rent than you lose from your benefits.

If you claim universal credit, only the amount of rent you receive above £7,500 per year is counted when calculating your benefit. Charges for meals or services might not be counted.

Contact Jobcentre Plus as soon as you start receiving rent. If you don't, you may have to pay back any benefits that you weren't entitled to.

Paying tax for renting out a room

You don't have to pay any income tax on rent you receive if:

  • you live in the same property, and
  • the room you rent out is furnished, and
  • the rent you receive is not more £7,500 a year

If you get more than this amount in rent, you can choose to pay income tax on the amount over £7,500. Or you can pay tax on all the rent and claim tax back on any expenses, for example buying furniture or providing cleaning services.

For the tax year 2015/16, the amount of tax-free income for renting out a room to a lodger was £4,250.

Responsibilities as a landlord

When you rent out a room in your home, you are responsible for:

Rental agreements

Your lodgers are excluded occupiers because you live in the same building and share living space with them. This usually means they are only entitled to reasonable notice if you want them to leave.

If you have a written agreement this may say you have to give them a minimum period of notice.

What rent to charge

The amount of rent you can get usually depends on what private landlords charge for similar rooms in your area.

Check websites, local papers and shop windows to get an idea of how much landlords in your area ask for.

If you live in an area where rents are very low, you will probably get more income by offering to provide services such as meals or laundry as part of the arrangement.

Any amount you receive for additional services is included in the £7,500 you can charge before you have to pay tax.

Contents insurance

Renting out a room in your home can affect your contents insurance.

Contact your insurer to tell them you're renting out a room. This can increase your premiums.

If you don't inform your insurer about renting out a room, your insurance may no longer be valid.

Mortgage payment problems

Get advice from the National Debtline if you're struggling to pay your mortgage.

A specialist adviser may be able to help you to look at all the possible solutions. They can help you maker a realistic and affordable proposal for keeping up with your ongoing mortgage payments and paying off any arrears you may have.

Find out more about dealing with mortgage arrears.

Last updated 30 Dec 2016 | © Shelter

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