Taking in a lodger: lender permission and tax-free rent

Most mortgage agreements let you have a lodger as long as you live in the property, but you generally need your lender's permission first. Homeowners can usually take in lodgers, and most mortgage agreements allow you to rent out a room in your home, but you usually need consent from your lender¹. Check with your lender before anyone moves in¹.

Rent you get from a lodger in your house that is below the Rent a Room Scheme limit is tax free³. The scheme allows you to earn some income from a lodger tax free if you have a spare room⁴. Above that limit, you need to check whether you need to tell HMRC about the income³.

A lodger is not a tenant. If a lodger shares facilities such as the kitchen and bathroom with the landlord, they will be an excluded occupier². That gives them far fewer rights than a tenant, and it means the rules that govern tenancies do not apply in the same way. You also have to give a reasonable amount of notice if you want a lodger to leave, even if there is no written agreement¹.

Who must give permission before you take in a lodger

Before taking in a lodger, you need permission from your spouse or civil partner and anyone who owns your home⁶. That applies whether or not those people live with you. If you have a joint mortgage, every borrower on it is an owner, and a joint mortgage is usually shared by two people, though some lenders will allow up to four borrowers to share a mortgage⁷.

If you rent rather than own, the picture is different. Most contract holders can only take in a lodger if they rent a whole house or flat, have a spare room, and get permission from their landlord before a lodger moves in². If you rent from a community landlord and have a secure contract, you have the right to take in a lodger, but most other types of renting agreement do not allow lodgers². You can rent the room to a lodger if you have a secure tenancy; with other tenancy types you need your landlord's permission⁸.

If you are a leaseholder, you might also need permission from the freeholder¹. That is a separate consent from your mortgage lender's, and both may be needed.

If you are separating from a partner, you will need to tell your mortgage lender that you and your partner are no longer together if you have a mortgage⁹. Even if both of you agree, or a court orders one person to take over the mortgage, the lender is not obliged to release the other person from it, and can refuse based on its own affordability criteria¹⁰.

Asking your mortgage lender: what to tell them

Your mortgage agreement will say if you can take in a lodger⁶. If you break your mortgage agreement, your lender could take you to court⁶. Most mortgage agreements do not allow you to rent out your home without your lender's consent, and if you rent a room without consent you could be breaking your mortgage agreement and your lender may be able to take you to court².

The process is usually straightforward. For a landlord letting a mortgaged property, it is simply a case of sending a consent to rent application to your lender¹¹. Some lenders will grant you a consent to let on your current deal, while others may insist on switching to a buy-to-let mortgage¹². Consent to let requires permission from all mortgage account holders¹³.

Many lenders refuse to give consent if you have mortgage arrears². If you are behind with your mortgage payments, the lender may arrange a forbearance agreement with you, which allows you to repay any missed payments¹⁴. If you are having problems with your mortgage, you could get help from your lender if they have signed up to the Mortgage Charter¹⁵. Most UK mortgage lenders have signed up to the charter¹⁶.

If you are getting help from a debt adviser, tell your mortgage lender¹⁷.

Lodger or tenant: why the difference matters

The distinction between a lodger and a tenant turns on whether you share facilities. If a lodger shares facilities such as the kitchen and bathroom with the landlord, they will be an excluded occupier². If you do not share facilities, the person renting a room could be a sub-holder rather than a lodger².

In Scotland, your lodger will have a common law tenancy⁶. In Wales, a lodger agreement is not an occupation contract unless the landlord gives a notice saying the agreement is an occupation contract before or at the time of making the agreement²⁰. In England, if you are a lodger and not on a fixed-term agreement, your landlord does not have to give you notice to increase your rent²¹.

The rights of a lodger are limited. A lodger cannot stop the landlord from entering their room or rooms². If a lodger or sub-tenant is living in a property where the person renting from has no permission from the head landlord or lender, they will not have many rights, and if the landlord or lender decides to evict the person they are living with, they will have to leave too¹⁹.

If your lodger has to claim benefits to help with their rent, they can usually get the shared accommodation rate of Local Housing Allowance¹. Under Housing Benefit, any sub-tenants or lodgers you have can be included as an adult occupant of your home when assessing your bedroom entitlement, but the income you get from sub-tenants or lodgers is included when working out your benefits²². If you get a lodger, the council does not make a bedroom tax deduction⁸.

Terms in mortgage agreements or insurance which prevent landlords renting to people who get benefits are no longer permitted²³.

Tax-free rent from a lodger in your home

The government has a Rent a Room Scheme that allows you to earn some income from a lodger tax free⁴. Rent you get from a lodger in your house that is below the Rent a Room Scheme limit is tax free³. The scheme applies to people with a spare room²⁴.

Income Tax is administered by HMRC, and you need to check if you need to tell HMRC about this income³. If you live and pay tax in the UK, you must tell HMRC about any rental income you receive from any overseas properties you own²⁵. You do not need to notify HMRC or register for Self Assessment if your only income is from savings and investments and/or property and the exemptions outlined in the Property rentals and Savings and investments pages apply²⁶.

If you are a non-resident selling a UK home, you may still owe tax if you let part of your home out, but this does not include having a lodger²⁷.

If you already have a lodger in place and a track record of rental income, some lenders may be able to include it when assessing your mortgage²⁸.

What can go wrong and where to get help

The main risk is breaking your mortgage agreement. If you take in a lodger without your lender's permission, you could be breaking the terms of your mortgage agreement²⁹. Your lender could take you to court⁶. If you do not get your lender's permission before you enter into certain schemes, you could be breaking the terms of your mortgage agreement³⁰.

If your lender does take you to court, they must ask the court for a possession order and get court bailiffs to evict you before selling the home³¹. Your lender must send a notice to your home which says they have asked for bailiffs to evict you³². The court will also expect that your lender has told you to get independent advice, told you to contact the Housing Executive, considered your suggestions to repay the debt, and given you reasonable time to work on a repayment plan³³.

If you are a lodger and the person you rent from is evicted, you will have to leave too if they had no permission¹⁹. If your landlord bought the property through a buy-to-let mortgage, you probably have no right to stay in the property after it is repossessed by the lender³⁴. A tenancy is usually binding on the mortgage lender only if you already lived in the property when your landlord bought it, you moved in as a tenant before the mortgage was taken out, or your landlord's lender agreed to the tenancy³⁵.

If you are struggling with your mortgage, help is available. If you are having problems with your mortgage you could get help from your lender if they have signed up to the Mortgage Charter¹⁵. If your lender has signed up to the charter, they should offer you a wide range of support if you are worried about meeting your mortgage payments because of increased interest rates, or are already struggling to make payments¹⁶. If you are behind with your mortgage payments, the lender may arrange a forbearance agreement with you¹⁴.

Free, impartial help is available from MoneyHelper, National Debtline, Business Debtline, StepChange and Citizens Advice. If you are getting help from a debt adviser, tell your mortgage lender¹⁷.