Wednesday, 11 December 2013

Renting out a spare room

Photo of the inside of a fridge. Four eggs are on the shelf, with 'Clean the fridge please' written on them.
Renting out a spare room - an easy source of extra income? Or maybe coming home from a hard day’s work to find your flatmate’s dirty dishes in the kitchen is your idea of hell?

Our latest blog post looks at how much faster you could pay off your mortgage with a bit of extra help from a lodger - but there are important points to consider.

How much could you earn from renting a room in Scotland?

Graph showing that if you overpay a £100K mortgage by £300 a month you can pay it off 12 years early.
Do you fancy paying off your mortgage 12 years early?
In and around Glasgow, you could get £300 per month or even more for a double room, excluding council tax and fuel bills. In Edinburgh or Aberdeen, up to £650 per month. That could make a serious dent in your mortgage. Let’s say you purchase a two-bedroom flat in Glasgow with a mortgage of £100,000. At 5% over 25 years that would cost you £585 per month. If you rent out one of the bedrooms for £300 per month, you could use the rent to overpay your mortgage and pay it off twelve years sooner. Sound tempting?

Sharing bills

Renting a room means you could get some help with other bills such as council tax, gas and electricity.

In the example above, let’s say your two-bed flat in Glasgow is in Council Tax Band C which means a bill of approximately £120 every month. According to, the average fuel bill for a two bedroom flat is £95.72 every month. Split those bills with a flatmate, and you’ll be saving an extra £107.62 per month.

Other benefits

Sharing your flat brings other benefits of course. Someone to watch EastEnders or the football with, and an extended social circle. If you’re lucky, they’ll pull their weight on the housework too!

Important points to consider:

There are a few important points you need to bear in mind before you start advertising on Gumtree:

1. Help to Buy Schemes

If you’ve bought a home using the Help to Buy, MI New Home or LIFT schemes, you can only let out a room if you obtain consent from the agency you bought from (usually a Housing Association acting for the Scottish Government). This provision is really designed for people who have got into financial difficulties after they have completed on the purchase, not for those who are buying with the intention to let out a room. 

2. Tax implications

You are allowed to earn up to £4,250 per year from letting a room, without having to pay tax on it. This works out at £354.16 per month. If you’re letting out more than one room, or even one room in an expensive area, you could potentially earn more than the tax threshold. So what happens then?
You have a choice – either you pay tax on the portion of the rental income that is above the threshold, or, you pay tax on all the income, but you are entitled to offset any expenses such as repairs against this.

3. Fuel costs

You are likely to have increased fuel and repair costs if someone shares your home, especially if they don’t keep the same hours as you, so the central heating may be on more. You can offset this by agreeing to share bills, or building in an amount for electricity and gas when you set the rent. You can estimate your likely fuel bill at

4. Council Tax

If you were living on your own and claiming the single-occupancy discount on your Council Tax, you’ll need to inform your local authority and start paying the higher rate. But again you can offset this by sharing bills.

5. Get your mortgage lender’s permission

Your lender may require you to move to a different mortgage rate product and they may want to see evidence that the room you let meets certain standards.

6. Inform your insurer

If you don’t inform your insurer, and you then claim, you may find that they won’t pay out. Your premiums are likely to go up, as there is more risk involved when you invite someone into your home. You may also find that your lodger’s possessions aren’t covered by your policy so they will have to insure their possessions separately.

7. Understand landlord and tenants’ rights

If you rent a room to a lodger, even on an informal basis with no contract or written agreement, they are still considered a common law tenant. If they have any part of your home for their own exclusive use (for example, their own bedroom), then they are entitled to four weeks’ notice if you want them to move out. Think about what would happen if your lodger’s circumstances change and they can’t afford the rent – would you be prepared to accept Local Housing Allowance (Housing Benefit)? If so, they will need written proof of the tenancy. A letter from you would do but a contract or rent book would be better.

So, if you’ve done your sums, taken all these points on board, and you think renting out a room is for you, why not contact Your Mortgage Expert? We’ll find you the best mortgage and insurance deals for prospective live-in landlords.

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