Should I take in a lodger?

Terraced houses
Taking in a lodger could make you money...if you're tolerant
"Whenever a friend tells me they’re thinking of buying a property, I always advise them to take in a lodger" Lucy Martin, homeowner
  • | by Kristian Dando

Fancy making up to an extra £4,250 a year, tax-free? Well, you might be able to by renting out a furnished room in your house.

Plenty of other people are - according to insurer LV, the amount of people lodging in the UK and Northern Ireland almost doubled last year.

“More people are travelling further for work than they were before,” says Richard Luffman, property and construction business manager at recruitment agency Reed. “With the Crossrail project from London to Birmingham, this is only set to continue. We’ve got a man who lives in County Durham who works in London during the week. You’ve got to go where the work is.”

This means that there are more people looking for places to sleep during the working week and homeowners (and tenants, if their landlords allow it) could stand to make some serious cash.

Take the example of 27 year old Lucy Martin from Gloucestershire. A few years ago, she was looking to get on the property ladder. Although she wanted to invest in a family home for the future, her wages would only stretch to keeping up with repayments on a one-bedroom flat.

But under the government’s Rent a Room scheme, she would be entitled to £4,250 tax-free income from letting out furnished accommodation. So, she put a deposit down on a much bigger two-bedroom house, and has had a sequence of short-to-mid-term, Monday-to-Friday lodgers making up the shortfall, generating an extra £350-a-month in income.

“I’m 27 years old, and only 20 years away from repaying my mortgage on a family home – that will probably be reduced to 18 with additional extra income from a lodger,” says Lucy. “Whenever a friend tells me they’re thinking of buying a property, I always advise them to take in a lodger.”

Room to think

If you are considering a lodger, there might be a few factors to consider with your mortgage first, as James Cotton, mortgage expert at London & Country explains: “It shouldn’t be too much of an issue. Although a lot of lenders won’t allow lodgers, a decent number will, and they’ll typically accept a maximum of one or two lodgers in your property,” says James. “You wouldn’t need to pay more or take a different mortgage deal if you took someone in.

"That said, not all lenders that allow lodgers will accept the rental income when working out how much they’ll lend. Also, they won’t like it if there’s an AST tenancy agreement in place. A lodger should be just renting out a furnished room in your home – not a sub-tenant."

If you have a lodger in place when taking out a new mortgage (remortgaging) you’ll need to declare on the application form if there’s anyone over the age of 17 living at the property that is not party to the mortgage, and they may need to sign something to say that they have no ownership interest in the property. If you already have a mortgage and are thinking of taking in a lodger, you should inform your mortgage lender beforehand and check they’re ok with it.

There are other practicalities to think about, as Gocompare.com’s home insurance expert Mark Greening explains: “You should tell your insurer if you’ve taken a lodger in as it will affect your policy and coverage, as there could be an increased likelihood that you will need to make a claim. If you don’t tell your insurer any potential claims might be rejected. It’s also worth noting that lodger’s possessions won’t automatically be covered under a policy holder’s contents cover. There’s also a grey area around liability if a lodger is injured in your property – they could end up trying to sue you.”

It's also worth noting that if you're a single person and you take in a lodger, you'll lose your single persons' council tax allowance, which is a significant amount of dosh. However, it should be made up for with what you make from rent...in theory.

It might also seem obvious, but your gas and electricity usage will increase, too. And so will your water bills if you're on a meter. Then of course, there's wear and tear on your house's fittings and appliances...it all adds up.

A matter of etiquette

Then there’s the social side of having a lodger. It’s safe to say that if you’re of a less easy-going disposition, it might not be for you...

Josh Gardner, a production assistant living in Bristol, found this at his expense during a particularly unhappy couple of months between leaving university and finding a place of his own. “The landlord is the key factor in making your lodging experience a bad or good one,” he says. “I felt that my landlord was constantly seething at me for having the temerity to actually use the communal areas of the house - kitchen, bathroom, living room and so on. Whenever you'd go into the kitchen to do some cooking and the landlady appeared, I used to get a real sense that I was intruding in their space. It makes you feel like an unwelcome house guest, despite paying for the privilege of using all these areas.

“I don't think either of my landladies were bad people, or vindictive, but they just didn't communicate with me, which caused things to boil over into unpleasant territory,” he reflects. “If landlords and lodgers just communicate about things that are bugging them, and there will inevitably be those things, then circumstances won't escalate to the point that it becomes a bit of a nightmare.”

But get a good one, and it might just end up working brilliantly for everyone concerned. When Londoner Jenda Martin desperately needed extra income when she was made redundant from her job, a lodger allowed her and husband Dave to keep up with their mortgage repayments.

“We wanted a business professional from a family home, so that we knew they would integrate with our family – we weren’t looking for someone who would come back and feel they had to eat in their room,” she recalls.

In fact, the arrangement worked out for everyone – except maybe Dave. “Kathrin (the lodger) has become part of the family – we dominate the TV every evening. My husband Dave has to watch the football elsewhere.”

Top tips for taking in a lodger

- Recommendations from family and friends might be a good way to find a lodger (although potentially embarrassing if it doesn’t work out) but the internet is a real boon for putting lodgers and landlords in touch. Gumtree is free and widely used, but there are other lodger-specific sites such as Spareroom.co.uk, too.

- You’ll find a lot out from the interview stage, so ask some searching questions. “Initial interviews with a lodger can be done by email or over the phone but be sure to meet at least once before letting anyone move in. This is the best way to make sure you’re both on the same wavelength and it's the perfect opportunity to discuss house rules!” says Judy Niner, founder of lodging site Monday-to-Friday.com.

- References are important, too. You might ask to speak with their employer or a previous landlord and send a letter to their home address to make sure you have the right details.

- Make sure you lay down a few ground rules at the outset, which will avoid confrontations later on. So, if you’re not into the idea of coming back late at night to find them hosting a candlelight drinks reception, let them know.

- Lodging is a relatively informal way of living, but legal contracts between you and a potential lodger are really worth looking at. They'll offer protection for both you and your lodger. There are plenty of sample contracts available online, but it’s probably a good idea take some advice from your solicitor before signing anything. You are giving somebody the right to live in your home, after all. “A written contract signed by both parties will make things easier for both you and your lodger. It can include everything from deposit and rent amounts to house rules such as who is responsible for changing the sheets and which bills are included? If it’s written down and clear from the start there won’t be any problems,” says Judy.

- Take a month’s deposit for cover against breakage and damage and agree a notice period on each side which will allow you to find another lodger or them to find somewhere else to stay.

- Agree a date for payment of rent – it’s probably easier if you get your lodger to set up a direct debit rather than ask for cash or a cheque, and make sure you give them a receipt for rent paid.

- Be honest. If you don’t think it’s going to work don’t be frightened to say so. Starting the process again at this stage is a lot easier than doing it one month down the line.