Mortgage allowing two lodgers

jivebunny

Hi all,

I've recently started reevaluating my thoughts on buying a house since I've found information which seems to suggest you can get up to 2 lodgers in your house without a HMO.

I live in a house share at the moment and don't want to live on my own. While I comfortably have a 10% deposit for a house I've been put off by the thought of paying £1k a month on mortgage and bills to live on my own (which I don't want) instead of spending £420 pm all in for a house share and saving more in cash.

I had been looking at investing my money in low risk stocks and shares but having read up on this lodger situation I'm now wondering whether finding a 3 bed house with myself and 2 lodgers is a better investment.

I don't need the income from the lodgers to afford a mortgage but for me it's not a costs efficient option without them. Ie I don't want to spend all that money on accommodation. How likely is you average mortgage lender to give me a mortgage scored on affordability based on myself as a single occupant but with permission to rent two rooms out from day one?

Anyone see any glaring holes in the plan? Thanks

eddiejones

I don't really know what I'm talking about but given I am looking for a mortgage myself and have asked similar questions, I don't believe your provider would take this into account in decided "how much you can afford"...

They base the amount they can lend you on your income from your job (or if self-employed you need two years's accounts to demonstrate your income) and I wasn't allowed to include any self-employed stuff given it had only been going on for a year nor a monthly sum I received from a family member. So I doubt very much that they would allow you to agree to pay £1000 a month based on you getting two lodgers in.

[Deleted User]

As far as I understand it, the majority of mortgage providers don't have a problem with lodgers, as they have very limited legal rights which can't have an impact on the mortgage companies claim to the property, whereas an actual tenant can be a headache.

eddiejones wrote: »

So I doubt very much that they would allow you to agree to pay £1000 a month based on you getting two lodgers in.

I think you misread, he's saying that he can afford to take out a mortgage (based on affordability requirements from mortgage providers) but he doesn't believe it to be a sensible financial decision (paying £1000/m mortgage vs. £500/m rent).

He could pay without lodgers, but he doesn't want to because it's a waste.

holly_hobby

Yes, having lodgers (whom don't have a tenancy agreement), is fine from the lenders and residency point of view.

You can't take their rent into account within your affordability (but from what I've read, thats not what you want or need to do anyhow, so thats all good).

You can earn under the rent a room schem £4250 - https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme, without any tax liability, and if they are true lodgers (ie have the run of the general living space as a normal family member, and aren't restricted to their own specific portion of the hse etc), them you also won't be partially exposed to CGT (less permitted reliefs/exemptions) when you later sell the house on refer - http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#4 .

Hope this helps

Holly x

dimbo61

Why not start with One Lodger!
Consider the property you are buying and look for 3 good sized bedrooms and maybe En-suite for yourself and main bathroom for the Lodger/s.
Would you be happy with someone using the gas/electric/water whenever they want?

jivebunny

Thanks all. Seems to be positive so far.

Yes citricsquid, you're right I don't need rent money from lodgers to afford a mortgage. I just prefer the company of others and don't want to live on my own. Especially if my outgoings are gong to double for the privilege.

Thanks for the info on the rent a room scheme holly. I've looked into this a little bit. I see some people opt out of it though I've not understood the finer details as to why you'd choose to do this yet. Any lodgers would have full run of the house. I've not looked into the point you mention about CGT on selling the house though. I need to do some research here.

Dimbo one lodger is an option but I also see that as all your eggs in one basket as a house mate. While doubling your lodgers doubles your chance of getting someone in who's difficult to live with it also reduces your exposure to their annoyances if there's a 3rd person in the house. The key really is being picky with who you select and writing a good ad. I've house shared for a long time so I'd pretty confident in this area.

I'll need to look up on the type of agreement you arrange with a lodger. If it's not a tenancy agreement it must be something else. If anything just to confirm you've agreed the rent.

All sounds promising so far and I'm currently checking the market for a house in a rentable area with 3 reasonable sized double rooms.

From a finance perspective it feels most sensible to get the lodgers in ASAP. In order to do this I will need to purchase furniture or invest in some work on the house to make it appealing to the room rental market. I could just about afford an 85% mortgage but I'm thinking it'll be better to get a 90% mortgage and spend £7 or 8K on furnishing the house to a buy to let standard (I don't have any furniture) and get the renters in ASAP.

The other alternative is just keep saving for an 85% AND enough to furnish the house but then I'd have the same situation between an 80 and 85% mortgage.

In the mean time I will save while I look.