Yahoo Finance Taking a lodger: Everything you need to know
Increasing mortgage payments and the cost of living crisis have led to a recent surge in homeowners taking in lodgers.
According to SpareRoom, there were 12,573 new lodger-landlords between January and October this year, compared to just 8,015 in the same period in 2021, an increase of 57%.
With rents increasing, lodging, which is traditionally much more affordable than renting, suits many former tenants too, so demand is definitely keeping up with supply. But, if you’re thinking of taking in lodgers, what do you need to know and how does it work?
Who do you need to get permission from?
Before getting a lodger, you need to make sure it’s allowed, and you aren’t breaking any rules.
“Check with your mortgage lender, landlord or local authority (if you’re in a local-authority-owned property) to make sure you can legally take in a lodger. Unless you own your property (and the freehold) it’s best to check ahead to save any surprises later on,” says Matt Hutchinson, SpareRoom Director.
"If you currently receive benefits, tell your local benefits agency. Your benefits will almost definitely be affected by taking in a lodger — so find out in advance what this means for you."
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While you don’t need to own your home, you do need to live there. You also need to let your buildings and contents insurer know so you can inform your lodger whether they’ll need their own contents insurance or if they’re covered under your policy.
"Not all banks like the idea of other people/families living in the same building — such an arrangement may make the options available to remortgage significantly constrained. And, similarly, insurance companies will normally charge an additional premium as a result," says Christian Warman, Partner, Tedworth Property.
If you’re paying a single occupancy council tax, make sure your local authority knows about your lodger and whether they are full or part-time. It might make a difference to your bills.
What sort of lodger do you want?
Before advertising, you need to consider what you want from a lodger.
Do you want someone who’s only going to be around in the week? A student who’s only there in term time? A short-term lodger who only stays for a few weeks at a time or someone full time and long term?
Many websites are tailored to different types of lodgers, so it’s worth thinking ahead about this before you start your search.
"Before you decide to rent out a room to a lodger it's worth doing a bit of soul searching," says Judy Niner, co-founder of MondaytoFriday. "What sort of behaviours or habits would you find difficult to live with? What areas of your home are you prepared to share? Be honest with yourself about what you do and don't want from a lodger."
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Whatever sort of lodger you decide upon, by law, you’re required to check that they are legally allowed to live in the UK. Ask to see their passports or immigration documents and take copies of them, noting down the date you checked them.
How do you find a lodger?
There are lots of great websites around that will help you find the perfect lodger so take some time to work on your profile and your room advert.
"How you present your home in your advert will have a huge impact," says Niner. "Things like ensuring the room is clear and tidy, with a made bed, and quality photos which are taken away from windows and bright lights, can help make your lodging more attractive."
She also suggests including details of transport links and average commute times so lodgers know whether the room will work for their needs.
"It’s also important to share some information about yourself in your ad, this will help you find a lodger that is right for you," says Hutchinson.
Should you interview prospective lodgers?
It’s strongly recommended that you interview prospective lodgers — either in person or on Zoom.
"Try meeting for a drink in a cafe or pub. It's neutral ground so you can both relax and get a more natural impression of each other. The more time you spend with them, the more opportunity there is to realise if you click and would work well living together," says Hutchinson.
Taking someone into your home is a big decision, so don’t feel pressurised into accepting the first person who responds to your ad, the first person you meet or to decide after just one meeting.
Taking your time and trusting your instincts will serve you well further down the line. Then, back up your decision by asking your prospective lodger for references from a previous landlord or an employer.
Should you create a list of ‘house rules’?
Don’t be afraid of taking a list of points with you when you meet. It’s good to lay down boundaries from the start.
These might include which parts of your home you’re willing to share, whether there are some foods you’d prefer them not to cook, any times of the day when you will need certain rooms free or quiet, and whether you mind them bringing home guests.
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Alternatively, if you prefer to be upfront from the start, you can put the "house rules" in your advert. If anyone finds them overly restrictive, you’ll just never hear from them!
‘A contractual agreement and upfront communication of any house rules or preferences means everyone is clear on how the arrangement will work and can feel comfortable when sharing a home,’ says Niner. ‘Respecting each other’s space and schedule and remembering that this is a home and more than just a bed for the night can help the lodger/host relationship be successful.’
What are the tax implications?
Under the Rent-a-Room scheme, the UK government allows anyone letting out a furnished room of their home to earn £7,500 a year tax-free.
If you stay under this threshold, you don’t even need to let HMRC know but, should you go over this, you need to declare it on your tax form and you will be liable for tax on the extra.
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