Higher chance of approval 
Lodger & Rent-a-Room Mortgages
Looking to maximise your borrowing power? Our in-depth guide will tell you all you need to know about how to get a lodger mortgage.
Whether you’re a first-time buyer or existing homeowner, taking in a lodger could be a good way to increase your monthly income and make it easier to afford your mortgage repayments. But before you dive in and start advertising a spare room, there are a few things you must do to ensure it is the right choice.
In this article we’ll look at the practicalities of lodger mortgages, how to make sure you do everything above board and where you should go for expert advice and the best rates.
Can I have a lodger with a mortgage?
Yes, it’s possible. In fact there are very few mortgages that will not 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 the terms and conditions of it 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 will expect to be informed. In some cases, it may affect your premium.
If your property is leasehold, once again you will need to check the conditions of the lease to make sure lodgers are allowed.
Having a lodger with a Help to Buy mortgage
There is no reason why you can’t have a lodger if you bought your home through Help to Buy, but you just need to make sure you follow the rules specific to this type of mortgage.
You must:
- Remain living in the home
- Make sure your lodger does not have a formal lease of tenancy as this would give them an interest in the property
For any other information on subletting a Help to Buy property refer to the government website.
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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.
Lots of 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.
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.
For a lodger not yet living with you, this might be a signed rental agreement. 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 lots of lenders operating in this niche are specialist, 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 case 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, 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 and 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 will only approve a lodger mortgage if the rental conditions meet the rent a room scheme requirements.
If renting out a room to a lodger in Scotland you will 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 that do having very specific lending criteria, speaking to a broker is the best way to save yourself time, effort and disappointment when applying.
Our broker matching service will put you in touch with an advisor who specialises in lodger mortgages and has a track record of helping people in your situation get approved.
To arrange a free no-obligation quote call today on 0808 189 2301 or enquire online.
Speak to an expert on lodger mortgages
Maximise your chance of approval with a specialist in lodger mortgages
FAQs
No. A lodger lives with you in your main home whereas a tenant rents all or part of a home that has been bought for the purposes of letting out. If you want to rent to tenants, you will need a buy to let mortgage.
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. It’s against the terms of your mortgage to rent out a room without informing your lender. With that said, most will be absolutely fine with it so almost all borrowers will have nothing to worry about.
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About the author
Pete, 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 found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with 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!
Pete Mugleston
Mortgage Advisor, MD