Rent-a-Room Mortgages

It can be tough to maintain mortgage repayments in modern times, especially if you’re buying independently. To this end, many people have taken to becoming a live-in-landlord. Unlike traditional landlords, live-in landlords don’t need a specialist buy-to-let mortgage, they simply need a spare room within their own home to accommodate a lodger.

Here we look at how to rent-a-room if you already have a mortgage, as well as lodger mortgages, and how they could help you to get a larger mortgage in some scenarios.

Can you rent out a room in your house on a normal mortgage?

Yes, most lenders allow you to rent-a-room in your home on a standard residential mortgage. However, not all lenders do, so it’s essential that you check your mortgage terms and conditions before inviting a lodger to stay.

While this can be a practical way to boost your income, it’s important to inform your lender of your intention to become a live-in-landlord. Even where your terms and conditions seem to allow lodgers, some lenders, for example, NatWest, have a clause requiring you to seek permission before they move in.

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Can you get a bigger mortgage if you rent-a-room?

It’s possible, yes, as certain lenders will consider lodger income when they carry out your affordability assessment. This could, therefore, increase your spending power, possibly allowing you to borrow more.

This is sometimes referred to as a lodger mortgage, or a rent-a-room mortgage. In reality, it’s the same as any other residential mortgage, but the lender is simply open to including lodger income in your loan calculations. However, there are only a small number of lenders who offer this, and each has specific criteria you’ll need to meet around taking in a lodger.

At Money Helpdesk we can recommend those specialist lenders who accept lodger’s rent and other forms of non-standard income in their affordability calculation. Speak to our team today for expert guidance.

How to get a mortgage based on lodger income

The majority of criteria you’ll need to meet will be the same as any standard mortgage application criteria, such as affordability, creditworthiness, meeting age limits and property specific requirements.

However, there will also be lodger-specific requirements you’ll need to meet in this case. These vary from one lender to the next, but are likely to include:

• Proof of lodger income will be typically be required, this is often in the form of bank statements

• Some lenders prefer a lodger agreement to be in place and will want to see a copy of this. It should detail the rent amount, payment agreement and any end dates agreed upon

• Some lenders only allow one lodger at a time, although others may accept more

• Lodgers are not usually allowed to be family members

• Most lenders have a borrowing limit of around £250,000

• The maximum loan-to-value (LTV) most lenders offer is around 80% LTV - meaning 20% deposit

• Some lenders will only accept lodger income under the government rent-a-room scheme tax-free threshold of £7,500 for mortgage calculation purposes

The amount of rental income earned from your lodger that lenders are willing to consider also varies, with many only taking 50% into consideration. However, some lenders may consider up to 100% of your lodger income if you can provide substantial proof of around 2 years receipt.

It’s important to note that even when lenders consider 100% of your lodger income, it’s unlikely you’ll get a mortgage with lodger income alone. You’ll need to provide evidence that you have at least one other reliable source of income on application.

Rent-a-Room Mortgage Calculator

To get an idea of your maximum borrowing potential with a lodger in your property, enter your total income - including any rental proceeds - into our affordability calculator below:

Which mortgage lenders accept lodger income?

Mortgage lenders that allow lodgers won’t necessarily also accept lodger income. Over 30 lenders allow lodgers in the terms and conditions of their mortgages, but only a handful of those will consider the rent you earn from them in your income assessment.

It’s also worth noting that some lenders only consider this towards remortgages, as most lenders will want to see evidence of lodger income for a minimum period of time.

Here are some examples of lenders who may be willing to consider some or all of your lodger income in your loan calculation:

• Santander - may consider up to 2 lodgers at a time

• Bath Building Society - offer a specific rent-a-room mortgage at a maximum of 80% LTV on capital repayment only but will consider up to 100% of your lodger income

• Norton Home Loans - may accept up to 75% of your lodger income if there is a lodger agreement and bank statements to back it up

• Vernon Building Society - may consider up to 50% of your lodger income with 3 months’ bank statements or up to 100% with 24 months

• Dudley Building Society - may consider your lodger income but only up to the government rent-a-room tax free threshold

• Loughborough Building Society - may accept up to 50% of your lodger income if they have lived with you for at least 3 months

• Darlington Building Society - will consider up to 75% of your lodger income up to the tax-free limit set by the rent-a-room scheme. This option is available through intermediaries only

You can use our rates tool, below, to get an idea of the current rates offered by these lenders, and lenders across the whole market. However, finding the right lender for your rent-a-room mortgage is not always straightforward, so speak to the Money Helpdesk team for detailed, independent, whole-of-market advice in this niche.

If you're looking to take on a lodger either in your current home or to buy a new property, get started today and we'll endeavour to find you the best deal possible.