Sub-letting a spare room in your home could be reliable way to help with your mortgage arrears. However, it may affect the tax you pay or any benefits you are entitled to.
How do you go about it?
If you are only letting a lodger for a few days- say, someone who’s just in town for a trip- you don’t usually need permission.
It is advisable to refer to your mortgage lease or agreement to verify. There may be a clause that says you must inform your lender or freeholder if you accept a lodger. If you do need permission, it is important to get one first. Not doing so means you are breaking the terms of your agreement. You could be taken to court by your mortgage lender.
Most mortgage agreements and leases state that you can’t sub-let your home or any part of it without permission. Note that sub-letting isn’t the same as allowing a lodger.
Advice your lender
Before you go about it, let your lender know. It usually helps if you already have an eligible tenant in the picture. Although personal mortgages are for the borrower’s use of the property, your lender will be reasonable if you satisfy certain conditions. For instance, as long as you live in the same property with the ‘tenant’, it shouldn’t be a problem.
The lender will want to ensure that the tenant won’t have any rights to the property if it is repossessed, so you may want to show them a formal agreement stating this. Your tenant should also sign a consent form stating they are aware that the home is mortgaged.
It is a known fact that that short-term B&B is quite a grey area. Some people may be tempted to keep the arrangement to themselves. Especially as a consent to mortgage form may seem impractical. But it is advisable to inform your mortgage lender so you don’t attract any legal implications if you are caught.
If the lender feels the terms are similar to using the property for commercial purposes, or you are in breach of the original mortgage terms and conditions, they might raise the interest rates or convert your mortgage to a more appropriate deal.
Other things you should do
Informing your mortgage lender isn’t the only thing to consider when sub-letting your room. There are insurance implications and taxes to consider.
Tax
At the moment, anybody renting out a room in the UK will only pay tax if the rental income exceeds £7,500. This means homeowners can benefit from their gains as long as they remain within threshold limits.
Insurance
The moment you allow third-parties live in your home, you must get landlord’s building insurance (and the contents if you can afford it). It is also one of the documents your mortgage lender would like to see before granting permission.
Terms and conditions may vary for specific lenders, please contact a professional for more details.
