Lodger & Rent-a-Room Mortgages
As many as 34 lenders may consider your type of mortgage. Your eligibility will determine exactly which ones are available to you. We have helped hundreds of customers with a lodger or rent-a-room mortgage, and three experts in our team focus exclusively on this type of mortgage. We are confident we can get your mortgage approved and find you the best deal. If we cannot and another broker does, we will give you £100.*
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Author: Pete Mugleston
CeMAP Mortgage Advisor, MD
Quick Summary
About 34 lenders allow homeowners to take in lodgers, and a few will even factor that rental income into their affordability checks, potentially allowing you to borrow more than you would from your own income alone.
It’s crucial to be upfront with your lender; not telling them could breach your mortgage terms.
And don’t overlook the tax perks from the Rent-a-Room Scheme, which lets you earn up to £7,500 a year tax-free!
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Yes, it’s possible. Very few mortgages won’t allow you to take in a lodger as long as you seek permission from your lender first. With that said, if you already have a mortgage, you should check its terms and conditions before committing to renting out a room.
You will also need to check your home insurance policy. Most will have no problem with you taking in a lodger, but they expect to be informed. In some cases, it may affect your premium.
Once again, if your property is leasehold, you must check the lease conditions to ensure lodgers are allowed.
Here are some of the key criteria lenders will look at when they assess your application:
- Lender’s policy on lodger income
- Compliance with Rent-a-Room Scheme (if applicable)
- Accurate reporting of rental income
The following are some questions you should consider before you apply:
- How many lodgers do you have/want?
- How much rental income do you expect to receive monthly?
- Is the rented space furnished and part of your main residence?
No. A lodger lives with you in your main home, whereas a tenant rents all or part of a home bought to let out. You will need a buy-to-let mortgage if you want to rent to tenants.
No. Some lenders will consider lodger income as ‘topping up’ your main income, but none will lend based on it as your only source of income.
Yes. Renting out a room without informing your lender is against the terms of your mortgage. That said, most will be absolutely fine with it, so almost all borrowers will have nothing to worry about.
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Can lodger income count towards a mortgage?
While most mortgages will permit you to take in a lodger, only a handful will allow you to include income from a lodger as part of your mortgage affordability assessment.
Many lenders are wary of lodger income as it can be short-term and unreliable. However, if you can find a lender who will approve a lodger mortgage (sometimes called a rent-a-room mortgage), it can be the difference between approval or rejection or your ability to borrow the full amount you want.
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How to get a mortgage based on lodger income
Follow these steps to increase your chances of being approved for a lodger mortgage:
Get your documents together:
In addition to the standard mortgage documents such as ID, bank statements and payslips, you’ll also need to supply evidence of your lodger income.
This might be a signed rental agreement for a lodger not yet living with you. If they have been with you for some time, make sure their payments are clearly marked on your bank statements.
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Which lenders offer lodger mortgages?
While many lenders operating in this niche are specialists, some high-street names, including Santander, Mansfield Building Society, and Swansea Building Society, will approve a lodger mortgage (HSBC and NatWest, however, do not accept lodgers as part of their mortgage conditions).
Each lender has their own unique criteria for calculating lodger income as part of affordability checks.
Typical requirements include…
- Maximum 50% of lodger income taken into account (in some cases up to 100% with proof of 2 years + income)
- No more than one lodger at a time
- Remortgage only
- Maximum loan of £250,000
- Maximum 80% loan-to-value (LTV)
- Lodger cannot be a family member
Rather than approaching one of these lenders directly, we recommend speaking to a mortgage broker to increase your chances of finding the right mortgage provider the first time.
Are there schemes for renting out rooms?
Yes. The government-approved scheme for renting out rooms is known as the rent-a-room scheme. It allows you to earn up to £7500 per year (£144 per week) of lodger income without paying tax on it. Any income above that must be declared to HMRC and will be subject to normal tax rules.
To take part in the rent-a-room scheme, you must:
- Continue to live in the home yourself
- Provide a furnished room
- Confirm your lodger has the legal right to stay in the UK
Some lenders only approve a lodger mortgage if the rental conditions meet the rent-a-room scheme requirements.
If renting a room to a lodger in Scotland, you need a lodger agreement.
Get matched with a broker who specialises in rent-a-room mortgages
With so few lenders offering lodger mortgages and those with very specific lending criteria, speaking to a broker is the best way to save yourself time, effort and disappointment when applying.
We have advisors who specialise in lodger mortgages and have a track record of helping people in your situation get approved.
To arrange a free, no-obligation quote, call 0330 818 7026 or enquire online today.
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Pete Mugleston
CeMAP Mortgage Advisor, MD
Pete, a CeMAP-qualified mortgage advisor and an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete successfully went the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained and his love of helping people reach their goals led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!
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