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Dodging lodger bodges
Taking
in a lodger can be a useful source of extra income, but it also
means sharing your home with someone you do not know.
We offer some guidance
What springs to mind when you think
of lodgers? A misfit living in a squalid attic room leading a double-life
as an axe-murderer? Or perhaps oddball characters in rundown boarding
houses as per 1970s sitcom Rising Damp? Even when you enter ‘lodger’
into many internet search engines you’re presented with a
plethora of films and plays about vicious serial killers in the
twilight world of rented accommodationIn reality, this is a fictional
stereotype, and with rising interest rates renting out a spare room
may prove welcome relief to your tightening finances. It could also
help you on to the housing ladder if you’re a would-be homeowner.
Alongside the benefits, however, are potential risks, so you need
to consider everything.
Permission to lodge
You first need to establish if you’re actually allowed
to take in a lodger. If you’re a freeholder there’s
no problem. If you’re a leaseholder it’s unlikely your
lease prohibits you from renting out part of your home, but you
should check. There are four other parties you should inform if
you intend to have a lodger. The first is the taxman. Registration
to the Inland Revenue’s Rent a Room scheme means you can earn
up to £4,250 a year from rental income, tax-free. This equals
just over £350 a month. You will have to declare anything
over and above this on an annual self-assessment tax return.
Secondly, it’s advisable to inform your mortgage lender of
your intentions. When lenders calculate income multiples they generally
don’t take lodger income into account. One that does is The
MarketPlace, which adds the £4,250 Rent a Room tax allowance
to your salary. So, if you have a salary of £22,000 you would
be able to borrow £91,875 (£26,250 x 3.5) instead of
£77,000. This gives you another £15,000 more purchasing
power.
If you’re already a homeowner, “You should inform your
lender of any change to how your property is inhabited or used,”
adds Sue Anderson at the Council of Mortgage Lenders (CML).
With an extra person under your roof, who might also bring a trunkload
of possessions with them, there will be an increased risk of accident
or theft. This needs to be adequately covered by insurance. Malcolm
Tarling, spokesman for the Association of British Insurers, says:
“General market practice is that your lodger would need to
get their own contents insurance, but talk to individual insurance
companies about their policies.”
Finally, if you receive help pay-ing your council tax (if you live
on your own, for instance), the amount payable will increase. Contact
your council to advise them of the change and check whether you
need planning permission or not if you intend to convert your property
to make it more lodger-friendly. Ensure any furniture and appliances
in their room meet current safety standards.
Checks and measures
As you are inviting someone to share your home, there
are some basic measures you should take to prevent hassle later.
“The most important aspect is the selection. Letting accommodation
in your own home is very different from letting accommodation elsewhere.
There’s no need to be paranoid, but it’s prudent to
be sensible,” advises Gareth Hardwick, head of policy at the
National Association of Landlords. Unless you already know your
soon-to-be lodger well and trust them fully, a screening and verification
process is wise.
Ask for a previous landlord reference and one from their employer.
If you want to check applicants’ credit status they will have
to supply a report themselves. Even though it is not a legal requirement
to have a binding contract with a lodger, it is advisable to draw
up a simple written agreement. The agreement should outline how
much the rent is and when it should be paid, the notice period –
one month is normal practice – and any other house rules,
such as those concerning overnight guests.
In the event you do need to get rid of a lodger, unless you gave
a shorthold tenancy agree-ment, they only have a licence to occupy
your premises. This means you have more control and in a worst-case
scenario you could exclude them by changing the locks.
Use local press, letting agencies and word of mouth to advertise
for your lodger. Find out what kind of people are likely to be in
need of accommodation in your area, for instance students or employees
of a large local business, and target your search accordingly.
If you’re sensible and thorough before taking in a lodger,
you can dodge the bodges, earn some cash and also be a housing supplier.
Success all round, Mr Rigsby!
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