Taking on a lodger is a popular way for homeowners with mortgages to boost their income. But what are the legal implications, do you need a contract and will it affect your mortgage? Legal expert Andrew Titmus answers these questions in our legal Q&A
The Question
I’m a first-time buyer and have been living in my two-bed home now for nearly a year. I’ve decided, to help pay the mortgage, to rent out my second room to a friend.
Before I proceed, should I take legal advice and/or draw up contracts? Also is there anything I need to consider? My mortgage is due for renewal in August 2025 and I wondered whether having a tenant would impact the application in any way?
Andrew’s Answer
Renting out a room to a lodger can be an excellent way to make use of extra space in your home and supplement your income. The cost-of-living crisis has led to many more homeowners exploring this option to help with rising bills.
This article will take you through some of the considerations you should consider if you are thinking about allowing someone to rent a room in your property.
The difference between a lodger and tenant
The first area to consider is whether the person living in your property is a tenant or a lodger.
Often there is confusion about the rights of a person occupying a residential property. The main difference between a tenant and lodger is whether the individual has exclusive possession of any part of the property. If they do, then it is generally the case that a tenancy has been created.
If the property owner lives at the property and has the right to enter any of the rooms, then it is more likely that a licence, and not a tenancy, is in place.
If a tenancy is in place one of the most important aspects to consider is the owner’s ability to evict the occupier if they fail to vacate of their own accord. This can be trickier, and a formal notice must be served.
A lodger does not have the same legal rights as a tenant, and it is much easier when it comes to eviction. Owners simply need to serve notice withdrawing permission to remain at the property and providing reasonable time (typically 14 days) to leave the property.
A lodger agreement
In a circumstance where an individual is renting a room in your property, we recommend that this decision is recorded in a Lodger Agreement.
Although this is not a legal requirement, we recommend this step to protect both the landlord and the lodger, and it ensures everyone is clear what their rights and obligations are.
A lodger agreement should include the following:
- The rent
- What happens if the lodger falls in rent arrears
- When and how often rent should be paid
- The term of the let
- It should detail the shared areas e.g. kitchen, bathroom, lounge
- Specifically determine the lodger’s accommodation e.g. bedroom
- Start/end date of agreement
- The lodger’s deposit amount (if one is taken)
Lodger agreements are easier to understand and more basic than tenancy agreements; there are far less terms and conditions.
Notifying your mortgage lender
Most mortgage lenders have no issue with homeowners taking in a lodger, but some have conditions. There are lenders that explicitly state there must be no formal letting agreement, and as a general rule you should always contact your lender if you are thinking of taking in a lodger.
Interestingly, if you are close to remortgaging, it is possible that you may be able to obtain a slightly bigger loan if you have a lodger.
A small number of mortgage lenders will consider lodger income as part of the affordability assessment when determining how much you can borrow. It is likely you will have to show regular evidence of payments for a number of months.
Notify your home insurance provider
If you decide to take in a lodger, you must notify your home insurer; failure to do so may invalidate your policy.
A separate policy may not be required, but the insurer will want to take into account the additional risk.
Recommending your lodger takes out their own policy is also a sensible step.
Knowing your rights
Our final recommendation is to know your rights from the outset. Although most landlord / lodger relationships are a positive one, some turn sour. Knowing your rights, to be able to evict the tenant at the start, may prevent problems in the long run.
If you are unsure as to you position and require further advice, our lawyers here at Parfitt Cresswellwould be delighted to assist.
Andrew Titmus is a trainee solicitor, dispute resolution at Parfitt Cresswell
