Not everyone likes the idea of a longer queue for the bathroom in the morning. Yet a growing number of homeowners are enjoying a tax-free income boost by taking in a lodger.
Householders can receive up to £4,250 tax-free in rent each year, courtesy of the government's Rent a Room scheme. According to the latest figures from insurance firm LV=, the number of people renting a spare room has nearly doubled in the past five years: 2.7% of UK homeowners now have a lodger, compared with 1.4% in 2009.
The rise of the landlord-lodger arrangement could help utilise the estimated 15 million unused bedrooms in England alone, giving renters more options and helping squeezed families and retirees cope with the higher cost of living.
The housing crisis is changing the profile of the typical lodger. Once a natural habitat of travelling salesmen and students on the hunt for their first digs, the average age of a lodger is now 31 and a fifth is aged between 36 and 50. Where single professionals struggling to get on the property ladder may have once rented a one-bedroom flat, exorbitant rents and hefty deposits have made the single-room option a compelling choice.
Demand for rooms from would-be lodgers is outstripping supply, so the government is being urged to make renting rooms even more attractive to homeowners – the last increase to the Rent a Room scheme's £4,250 tax-free threshold came back in 1997. Housing charity Shelter is backing calls to raise the threshold to £7,500 to match the reality of today's rents (the average annual rent for a room let to a lodger stands at £5,593, rising to £7,667 in London).
If you are a landlord
If you are thinking about taking in a lodger, there are a few key things to consider. Most mortgage agreements allow you to rent a room but you should check whether you need written permission from the lender. Renting out a room may also affect your contents insurance, so inform your insurer and check if premiums will rise. Any single homeowners benefiting from a 25% council tax reduction loses this if they take in a lodger. And if you do make more than £4,250 a year from renting a room (£354 a month), you will have to pay tax on the extra earnings.
Asking a potential lodger to provide a reference is a good idea, ideally from a previous landlord. But only a face-to-face meeting will help you establish whether he or she is the right person.
It is best to set out clearly the nature of the agreement. Less than half (44%) of all landlords ask for a deposit, often because their lodger is a friend or relation. If you are worried about leaving too much to chance, the letting websites offer a lodger agreement contract for around £5 and some insurance companies also offer draft forms.
Caroline Whitehead is a retired psychology lecturer living in Cardigan, west Wales. The 64-year-old has been taking in lodgers for almost 25 years and describes it as "a lovely arrangement". She charges £65 a week for the downstairs room in the four-bedroom bungalow she shares with her sister.
"I just tick a box on my tax return that says Rent a Room scheme – it really couldn't be easier," Whitehead explains. "Back when I was at university I enjoyed sharing flats, so when I bought my first house I thought it would be nice to have someone to share the bills with. It also meant I wasn't coming home to an empty house."
CarolineWhitehead has taken in around 15 lodgers over the years, even helping one young Polish man through his Open University studies. "Most of them have been delightful, and I'm still in touch with quite a few."
"They're always welcome to join me in the sitting room, but you do have to be a little bit territorial too and set boundaries," she adds. "I'm quite a friendly person. I think I only had one girl where it really wasn't working, and I just had to say, 'Sorry, it's not working' and gave her a couple of weeks' notice. But there hasn't been anything unpleasant."
If you are a lodger
Although renting may not provide much security or the chance to put down roots, many single people find lodging is the most convenient type of tenancy. Most room lets include all bills in the weekly rent and with the landlord at home, the house or flat is likely to be well looked after. So the rent on a furnished room often offers better value for money than a flatshare.
Another big advantage can be avoiding the huge six-week deposits letting agents demand, since many live-in landlords are happy to work on a week-to-week basis. But as "excluded occupiers" without tenancies, lodgers have very few rights and can be easily evicted if something goes wrong (the landlord only has to give "reasonable notice").
Signing a lodger agreement form will at least provide clarity on what is included in the rent (meals or laundry, perhaps), what is expected of you (keeping the room clean) and what sort of leeway you might be given if you can't pay the rent in an emergency.