MoneyMagpie

Sep 21

Mortgage assistance: Knock 23 years off your repayments

There’s an easy way to knock years off your mortgage repayments without sacrificing your quality of life. yes, you really can pay off your mortgage more quickly just by renting out your spare room.

Even better, this income is tax free up to £4,250 per year. And if you don’t want to commit to having long term house guests, renting short term to foreign students can also be a great way to boost your income in lean times.

Paying off your mortgage

Tax break

Under the Government’s Rent a Room Scheme income from renting a room is tax free up to £4,250 per year. This works out as just over £350 a month. You can take advantage of the scheme as long as the room you are renting is furnished and in your own house, not a separate property. Find out more at Directgov.

The North South divide

How quickly you’ll be able to pay off your mortgage with help from rental income depends on a lot of factors, from the room itself to where you live in the UK.

With some help from our friends at SpareRoom.co.uk, we compiled the following table. You can see that where you live can affect the number of years a lodger will take off your mortgage payments. The figures were calculated using typical mortgage payments and rental income for each area.

Town Years to pay off mortgage
Without a lodger With a lodger
Blackburn 20.5 11.5
Nottingham 29.4 16.6
St Albans 58.1 34.7

In an area with high demand for living space and high house prices, such as St Albans (where prices can be even higher than in London), you’ll be able to charge a lot more rent and so take more years (23.4) off your mortgage repayments.

However, because your mortgage is that much higher to begin with, it will still take longer to pay off than the mortgage of someone who lives in an area with lower demand and lower house prices. So, if you take on a lodger in Blackburn where house prices are lower, you’ll be able to take ten years off your mortgage payments and be mortgage free in just 11.5 years.

These figures will vary not just from town to town but from area to area and house to house. Work out how much rental income could help you by looking at your own circumstances.

Read the small print

Be aware that some mortgage deals don’t allow you to increase your repayments while you’re in the fixed period. To find out more, go to our article on how to pay off your mortgage in double-quick time.

Not a quick fix

Wherever you live, rental income probably won’t be enough to cover your whole mortgage payment every month, so don’t rely on this as your sole source of money for repayments.

Apart from anything else, you’ll be in a tough spot if your lodger leaves and you suddenly have to find other ways to pay your mortgage.

the moneymagpie mortgage comparison tool

Is it for you?

Renting out a room is an easy way to make money for very little effort and can be a real boost to your income, but you need to think carefully before you take the plunge. For instance, if you hate sharing your personal space, then this might not be the right option for you.

There’s no such thing as a free lunch, so be aware that you will have to put some work in. The amount of time and energy you need to commit is minimal, but you should still ensure you fulfil all the legal and other requirements of being a landlord. For more see Step 2 below.

It’s also worth considering whether you have enough room in your house for another person to live there. If you and your family are already tripping over each other, an extra houseguest might make things unbearable for everybody involved.

If you can offer your lodger a spacious room and great facilities then so much the better, but even smaller, less well-appointed rooms will be rentable at the right price.

How to do it

Step 1: Do your research

Look at classified and agency ads to get an idea of rental prices in your area. Visit a couple of rooms so you can find out what people are offering for what price.

You’ll be able to charge more if your house is in a good location such as a city centre and is near major transport links, and if the room is spacious and well-appointed with a double bed and en-suite facilities.

Step 2: Ensure your home meets the requirements

As a landlord you have certain requirements to comply with:

All gas fittings must be maintained in good order and gas boilers must have an annual safety check and all installation, maintenance and safety checks must be carried out by a CORGI registered installer. Keep a record of safety checks and issue a copy to your tenant within 28 days of each annual check. Ensure that all wiring and electrical appliances in your house are safe and supply instruction booklets.

Install smoke alarms and fire extinguishing equipment and provide an adequate means of escape in case of fire. Make sure that furniture and furnishings comply with fire safety regulations. (Most furniture that complies with the regulations will have a label telling you that it meets the standards).

These legal requirements might seem like a hassle, but they are there for a good reason. Failure to comply with the rules can be very dangerous and any gas leak or fire that affects your lodger will also endanger yourself and your family.

Your house should be generally safe and in good repair. Make sure that:

  • The building itself is well maintained with no damp or other problems.
  • There is adequate heating and water heating equipment.
  • Facilities such as bathrooms and kitchens are in good working order.
  • There are no fall or trip hazards.

Find out more about health and safety requirements from Directgov, and from the Fire Kills Campaign.

Step 3: Advertise

Use word of mouth and put a free advert on a classified site like Gumtree. Other websites where you can post an ad include:

  • SpareRoom
  • Easyroommate

Another good site is Rentomatic. They have a 14 day free trial and offer other services to make your life as a landlord easy, such as online rent payment.

Consider paying to put an advert in your local paper, newsagent’s window or supermarket noticeboard. Alternatively, employ a local managing agent to find a tenant for you. This will cost more, but the agent will vet the applicants for you and make the process hassle-free.

And look at other adverts to get an idea of how they are written. Include details of the room and facilities, where it is, the deposit and the rent per week or per month. Say what bills are included. You might also want to include details of your household such as number of children and any pets.

Here is an example of a typical ad (if you post your ad online, you can generally include a lot more detail):

Double room, £480 pcm (per calendar month). Available 06/01/12. Min term 2 months. A family looking for a friendly non-smoking female lodger in a 3 bed house in Bermondsey. Very roomy, garden. 5 mins from the station. Call Henry on 0208 222 3344 for more details.

Step 4: Get the lodger you want

In your advert, you can be specific about the kind of lodger you want – within limits. If you would prefer a female non-smoker, then say that, but be wary of putting people off by sounding picky.

Arrange to meet several potential lodgers and show them the room and facilities. Find out about their habits. How much time will they spend in the house? What work to they do? How do they spend their evenings?

It’s important to find out how compatible you are before the person moves in. Specify any house rules at this point, such as a limit on noise or guests after midnight – or rules about the use of communal living space such as the kitchen and living room.

Get at least two references, preferably from their bank or building society, a previous landlord and their employer.

Once your lodger moves in, don’t get complacent. There is no need to be paranoid, but fraud is on the increase so it makes sense to take precautions. Keep valuable items and important documents such as passports, credit cards and bank statements out of sight.

Step 5: Draw up an agreement

It is vitally important to have a written agreement signed by you and your lodger before they move into your house. This should include details of:

  • Rent – how much and when and how it is to be paid.
  • Deposit – how much and for what reasons it would be withheld.
  • How much rent you require in advance – a month is usual.
  • Notice – how much advanced warning either of you needs to give.
  • Rooms and facilities the lodger is entitled to use.
  • Services you will provide – such as internet, phone and laundry.
  • Household bills – if and how they will contribute.
  • House rules

To make sure your contract covers everything, a great option is to buy a ready made agreement. Lodger agreements are available from WHSmith for £4.75, or Amazon for £5. They are also available as to download from LawPack.co.uk priced at £9.99.

Step 6: Tell your insurance company and your mortgage provider

You could even take out a landlord insurance policy, tailored to meet your requirements with Endsleigh Insurance.

Make sure your buildings and contents insurance is up to date and inform your insurance company that you have a paying guest. Make sure you check what additional cover you need.

Most policies will only cover possessions belonging to people resident in the property, not temporary guests, so your lodger may need to get their own insurance.

Terms and conditions vary, so you’ll need to talk to your own insurance company to find out exactly how having a lodger will affect you. To find the best deals see our article on home insurance.

Inform your mortgage provider that you are renting out a room. This is usually allowed, but you may be in breach of your contract if you don’t inform them about it.

If you are serious about renting long term and are looking into buying a property, you may be able to get the expected rental income factored into your mortgage calculations.

See our homes and mortgages section for lots more information about mortgages.

How much can you make?

The income you can earn will depend on where you live and the facilities you offer. It could be anything from £40 a week to £250.

Take your costs into account. These will include:

  • Advertising the room
  • Health and safety checks – annual gas check, electricity checks
  • Furnishing the room, unless it’s already furnished
  • Maintenance
  • Increased utility bills
  • Extra home and contents insurance – remember this might mean higher premiums
  • Breakages

To find out more see our article on renting out a room.

Hosting foreign students

Hosting foreign students is a great way to meet new people and earn some extra income without committing to sharing your house long term. Thousands of foreign students come to the UK to learn English or on university exchange programmes, and need accommodation while they’re over here.

Costs are minimal and you can make anywhere between £35 to £200 a week depending on where you are and what you offer in terms of facilities and services. However, students come and go so this is not necessarily a steady source of income.

Having a foreign student as a lodger is most suitable for someone who has the time to spend with the student, especially if you need to tutor him or her as part of the deal.

You can find language schools on Idiom.co.uk, International Association of Language Centres, and English UK. If you live in a University town contact their accommodation office to find out if they use host families.

You need to provide:

  • Room and board – either bed and breakfast or full board.
  • Tuition – if the school wants you to tutor the student in English you will need a qualification, preferably a TEFL
  • Extras – you might want to charge extra for phone, internet and laundry facilities, make sure they use a phone card so that you can keep your phone bills separate.
  • A welcoming environment – many of these students will be young people far from home and so will need your support to get the most they can out of the experience.

For more info on this, see our article about hosting foreign students.

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