Getting a Mortgage with a Lodger: What You Need to Know

Thinking About Taking in a Lodger? Here’s What You Need to Know.

With the rising cost of living, increasing mortgage repayments, and rising cost of rent, many UK homeowners are looking for ways to boost their household income. If you have spare bedrooms, taking in a permanent lodger can be a practical solution to help ease financial pressure while making use of extra space in your home.

Under the UK’s Rent a Room Scheme, you can earn up to £7,500 per year tax-free by renting out a furnished room. This income from lodgers can be a valuable way to cover monthly mortgage repayments, but before you take the leap, it’s crucial to check your mortgage contract and mortgage conditions. Some mortgage providers lending impose restrictions on lodgers, and failing to inform them could lead to issues with your current mortgage.

For renters, affordable accommodation is in high demand, meaning a lodger arrangement can be mutually beneficial. The UK government even encourages homeowners to take in lodgers to help address the ongoing housing crisis. However, before making a decision, consider the legal, financial, and tax implications of having a lodger—especially regarding your council tax payments, insurance policy, and mortgage affordability assessment.

Let’s explore how getting a lodger might affect your mortgage, insurance, and tax obligations.

What is a Mortgage with a Lodger?

If you’re a homeowner struggling with monthly income, taking in a lodger could be a practical way to ease financial pressure. A lodger income mortgage, sometimes called a Rent a Room mortgage, allows you to rent out a spare room to generate additional income source—helping you stay on top of your mortgage repayments while making use of extra space.

Under the UK’s Rent a Room Scheme, you can earn up to £7,500 per year tax-free by renting out a furnished room in your home. This makes it an appealing option for homeowners looking to supplement their income. However, before taking in a lodger, it’s essential to understand the legal and financial implications, including lodger mortgage lenders’ lending criteria.

Not all mortgage providers lending permit lodgers, and some impose restrictions on declarable income from lodgers. Additionally, there are tax exemptions, insurance considerations, and mortgage affordability assessments to be aware of. To ensure compliance with your mortgage contract and UK housing laws, it’s advisable to seek personalised advice from a CeMAP-qualified mortgage advisor before proceeding.

How Does It Work?

If you’re considering renting out a spare room, you may be eligible for tax exemptions under the UK’s Rent a Room Scheme. This scheme allows homeowners to earn up to £7,500 per year tax-free by renting a furnished room.

If your anticipated income stays below £7,500, you don’t need to declare it for tax purposes. If you exceed this threshold, you must file a self-assessment tax return and either opt into the scheme for a tax-free allowance or report your rental income and expenses separately.

Understanding income count, credit ratings, and affordability calculations is essential to avoid penalties. If you’re unsure about income tax obligations, seeking advice from a mortgage expert or tax professional is recommended.

Can I Have a Lodger with a Mortgage?

Many mortgage providers lending permit lodgers as long as you continue living in the property. However, it’s essential to check your mortgage contract before proceeding, as some lenders may have additional criteria or require approval before you take in a lodger.

Additionally, you should consider the impact on your insurance policy. Informing your insurance provider is crucial, as having a lodger could affect your contents insuranceInsurance that covers damage to the contents of a property. premiums, landlord insurance, and building insuranceInsurance that covers damage to the structure of a property..... In some cases, insurers may increase premiums or require policy adjustments.

From a tax perspective, any income from lodgers beyond the £7,500 Rent a Room Scheme threshold must be declared to HMRC via a self-assessment tax return. Ensuring compliance with your mortgage contract, lease agreements, and tax rules will help avoid legal and financial issues.

Why Is It More Difficult to Get a Mortgage with Lodger Income?

Some mortgage lenders do not count lodger income when assessing mortgage affordability assessments.

The reason is that lodger arrangements are often informal, making rental income less predictable. Lenders may see this as a risk, as a lodger could leave at any time, affecting your ability to make consistent mortgage payments.

Because of this, some lenders refuse to consider lodger income when calculating your chances of success in getting a larger mortgage. However, other lenders, including specialist lenders and flexible lenders, may accept lodger incomeunder certain conditions.

If you are relying on lodger income to qualify for a mortgage, working with a specialist team of mortgage advisers can help you find mortgage deals that consider your anticipated income.

Can I Get a Mortgage If My Only Income Is from Lodgers?

Unfortunately, it is nearly impossible to secure a mortgage product solely based on lodger income.

Most lenders require applicants to have a primary source of income (such as employment or self-employment). While some lenders may count lodger income as supplementary income, it typically cannot be your only income sourcewhen applying for a mortgage.

If you rely heavily on income from lodgers, it is best to seek specialist finance advice to understand your options.

Next Steps

Taking in a lodger can provide a valuable source of extra income, helping you manage your mortgage repaymentswhile utilizing your home’s space efficiently. The UK government’s Rent a Room Scheme makes this option even more attractive by allowing tax-free earnings up to £7,500 per year.

However, it’s crucial to check your mortgage contract, mortgage department, council rules, and insurance policiesbefore proceeding. Consulting a mortgage broker can help you find exclusive mortgage experts and lodger mortgage lenders that accept anticipated income from lodgers.

FAQs – Mortgage with a Lodger

What are lodger mortgages?

Lodger mortgages are loans where mortgage providers lending consider rental income from a lodger when assessing mortgage affordability assessment.

Is it difficult to get a mortgage with lodger income?

Some mortgage providers lending hesitate to consider lodger income due to its unpredictability, while specialist lenders allow it as supplementary income.

How do I declare lodger income for a mortgage application?

Keep bank statementsA record of a borrower's financial transactions often requir... ready, record rental payments, and inform your lender. Some lenders may request a lodger agreement or proof of consistent lodger inco