Beat Your Mortgage Woes by Becoming a Landlord in the Rent-a-Room Boom!

• News
• Published: 02 Sep 2008 in Household and Home Insurance

The decline in the availability of cheap mortgages, coupled with huge cost-of-living increases, has caused a dramatic rise in the number of homeowners renting out a spare room. But if you’ve never considered this option as a way to beat the credit crunch, our guide will help you to avoid pitfalls such as unwittingly invalidating your home insurance policy.

The Rent-a-Room Scheme

Letting a little-used spare room could be a nice little earner. Under the government’s Rent-a-Room Scheme, you can pocket up to £4,250 (over £350 per month) tax free from a tenant who shares your accommodation. This is a brilliant way to boost your income, but there are a few rules that need to be followed:

• The room needs to be let furnished.
  
• You can’t claim for letting-related expenses on your tax return.
  
• The Rent-a-Room Scheme will not apply where a house has been converted into separate flats.
  
• The tax-free limit applies to the total amount that you charge you tenant (including money for meals or other services) and not just the rental portion.

Top Tips for Prospective Landlords

• Online accommodation sites, such as Spare Room, are a good place to find tenants. An advert with pictures will attract lodgers; but remember to tidy-up before taking photos, as not many people will be enticed by an odd-sock collection under the bed.
• Unless the potential tenant is known to you already, you may wish to check their credit-worthiness first. There are plenty of vetting services available on the web, such as Experian’s Check My Tenant. Unfortunately, screening to avoid die-hard Celine Dion fans will have to be done personally.
• Check with your mortgage lender or landlord. Although it’s unlikely that a lodger will breach your mortgage conditions, they still need to know: after all, they do own part of the property! Similarly, it’s up to your landlord to decide whether they will allow you to sub-let a room (and they may wish to pocket the extra cash themselves).
• Inform your home insurance provider. They may ask for an increase in premiums, and will possibly reduce the cover they offer (for instance, many will not accept claims for accidental damage caused by a tenant). If you don’t tell them, future claims may be refused.
• Bear in mind that the income from a lodger might affect any benefits that you are currently entitled to; take this into consideration when deciding whether a tenant will make you money.
• Get a written tenancy agreement signed by your lodger. At the minimum, this should detail the amount of rent, what the rent will cover, when it’s payable, and the notice either party needs to give if they wish to terminate the contract.
• The Citizens Advice Bureau has lots of useful advice about the legal side of room-letting. Lodgers do have fewer rights (and are therefore easier to get rid of) than other tenants, but it’s still beneficial for both of you to set out the tenancy terms in advance. Although telling them that the telly must be tuned into Hollyoaks at half six every evening may be a little too specific.
• It’s also a good idea to take a deposit (usually a month’s rent) to cover any damage the lodger may cause to your property. Unlike deposits for other tenancies, a lodger’s deposit does not need to be kept in one of the deposit protection schemes [link to deposit protection scheme article]. 
• Make sure your house is fully vetted for health and safety issues. This includes checking gas and electrical equipment, and making sure that furnishings comply with fire-safety regulations. Furniture made before 1950 is usually exempt, so you won’t have to get rid of that horse-hair settee that great-aunt Eileen gave you.  Remember that upgrading the safety and security levels of your home may lower your home insurance premiums.

Temporary Tenants

If you don’t fancy extra company on a permanent basis, why not consider these ideas?

• Mid-week renting is gaining in popularity with professionals who commute to work during the week. The main bonus is that you get your house to yourself on weekends, so your lodger never needs to know about your Saturday-evening Singstar habit.
• Foreign students often want short-term rents, which can vary from a few weeks to several months at a time. Remember to keep informing your home insurance provider when they are around!
• Live near somewhere popular? There’s lots of potential rental income to be made if your home is in Cheltenham (when the races are on), Edinburgh (during festival season) or Wimbledon (whilst people are watching the latest Brit go out in the first round), for example.

So if you’re a homeowner, don’t mind sharing and are a little strapped for cash, renting out a room can be a good way to make a bit of money and meet new people: and hopefully the experience will be more like Friends than Shallow Grave.

Find Great Deals on Home Insurance