With interest rates expected to rise in the near future, many Brits will find paying the mortgage more of a burden than it has been for the past few years. Renting out a room in your home could help to ease the financial pressure, and you could even find your earnings from it are tax free.
If you are considering getting a lodger, here's what you need to know.
Don't rush it
Before advertising, it's a good idea to consider the situation thoroughly. The room itself will bring the most revenue if it is decorated and furnished to a high standard so a fresh lick of paint and some attractive furnishings will go a long way. An en-suite bathroom will not only do away with potential rows over the morning routine, but will likely mean you can get more money for your room. Often you will find that the better the room, the better the lodger you end up with. Also bear in mind that if you rent a room or floor of your home, you must tell your mortgage lender or landlord to ensure you are not in breach of the terms of your mortgage, lease or insurance.
Since you are effectively inviting a stranger to live in your own home, good references are a must. Ask for at least two, ideally from a landlord and workplace, and call them rather than email. It is far easier to be economical with the truth when you have time to consider an email - on the telephone you'll get a better idea of whether they're faking it. A bank reference will give you the assurance that your potential lodger has regular money coming in.
Draw up a contract
Another essential room renting item, the contract should detail the amount to be paid and when, whether there is a deposit and how much, the length of the rental agreement, and any house rules that must be abided to - such as cleaning, when loud noise like music is or is not acceptable, and any extra services that you may be charging for, such as providing meals or laundry.
Under the government's Rent a Room Scheme, any earnings you get from renting your room out may be tax free. The scheme is open to anyone letting furnished accommodation to a lodger in their own home, and you can even do so if you yourself are renting, as long as your own lease allows subletting.
The scheme also allows you to earn up to £4,250 a year tax free (or £2,125) if you are letting jointly, and if you are charging for additional services you must include this. If your annual rent is more than that amount, you will need to complete a tax return, and you can either opt in or opt out. Opt in to the Rent a Room scheme and you'll pay tax on the 'profit' made from renting, minus allowable expenses. Opt out and you'll pay tax on the gross income minus the tax-free threshold, but with no allowance for expenses. It is also possible to change whether you opt in or out from year to year, but you must inform HM Revenue & Customs before 31 January.
Finding a lodger
Often the best way to find a lodger is via word of mouth, but since that's more luck than anything, you may want to try posting ads in the local paper or corner shop. Local colleges, universities and hospitals are other good places to advertise, since foreign students or employees may be checking notice boards in their own search for accommodation.
You may even be able to rent your room on a short-term basis to international students, which first of all gives you a good idea of whether you can cope with a lodger in your home, and secondly means you know they won't be there for a long stretch if you don't get on. Websites such as Hostuk.org.uk, Xploreuk.com, and Hosts International match students with accommodation, and local language schools often hold a database of suitable properties. It should be noted that you are often required to provide meals in these cases.
If you are looking for something more long term and have had no luck advertising locally, online is a good option. There are now many sites aimed at connecting tenants with accommodation, so try Houseladder.co.uk, Spare-Room.co.uk and EasyRoomMate.com as a starting point.
Lastly, whether you choose to opt in to the Rent a Room scheme or not, have long-term lodgers or short-term lets, always keep records of contracts, income and so on - it is always best to have everything in order in case there are any problems.
Have you rented out a room in your home? What advice would you give to others considering making a little extra income from their property? Leave your comments below...