In the current recession taking in a lodger is becoming a lifeline for those struggling financially. Families in the UK are taking in an extra 500,000 lodgers to help meet their mortgage repayments.
A recent survey by Abbey Mortgages has revealed that the number of homeowners renting out a spare room has tripled over the past 12 months - over 981,000 people in total and up by 152 per cent from 388,000 in July 2008.
Renting out a room can earn households thousands of pounds a year tax free, helping them to avoid repossession.
With almost 1,000 families a week currently being evicted from their homes and hundreds of thousands falling behind with their mortgage repayments, taking in a lodger is an easy way to earn extra income.
Having a lodger can typically bring in £393 a month or £4,716 a year - just over the Government's Rent a Room scheme's tax free threshold of £4,250.
The research by Abbey suggests that if all Britain's 16 million households rented out an empty bedroom, home owners could be sitting on lodger income of £6.29 billion.
If you're thinking about taking on a lodger, Tessa Shepperson, a legal expert in residential landlord and tenant law, gives her top tips on what you should think about before you let out your home.
1. Am I allowed to have lodgers in my property?
Check with your mortgage company whether you are allowed to let out a room. Most mortgage companies and landlords will agree if you ask them first, provided that you carry out proper checks.
2. How do I go about finding a lodger?
Students are often a good choice, and you can usually advertise via the students union of your local college. If you work for a large firm, have a word with the HR department as they may know of someone. Try putting a card in the window of your local corner shop. Finally, there are a number of websites, such as SpareRoom.co.uk, which advertise rooms for lodgers.
3. Should I check the lodger out first?
Your lodger will have access to your home and all your personal belongings so be very careful who you choose. Make sure that it is someone who you can trust, and who you will get on with. After all, you will be sharing a kitchen and bathroom with them! Take references - the main types of references are employer's, bank, previous landlords' and character references - and do a credit check using a credit reference agency. Lawpack's "Download Now" Lodger Application Form can help you to get started.
Read our seven steps to screening and selecting your lodger.
4. Are there any regulations I should be following?
Although you don't have to comply with all the legal repairing obligations applicable to rented properties, furniture should comply with the furniture regulations, and any gas appliances should be checked annually by a Corgi registered gas installer. For more information, speak to your local Trading Standards Office (furniture) or local Health & Safety Executive office (gas regulations).
Read more on the regulations landlords must comply with when letting out property.
5. Should I get an agreement in writing?
Once you have your lodger, you need to reach agreement with them about the rent and any 'house rules'. It's not absolutely necessary to give a written agreement, but it's generally a good idea. Note that tenancy agreements for assured shorthold tenancies will not be appropriate.
Protect yourself and your property with Lawpack's "Download Now" Lodger Agreement.
6. What if I want to get rid of them?
If you find your lodger to be unsatisfactory, you don't need to get a formal court order as they are sharing your home. However, you do need to give them written notice. 28 days is the normal notice period, unless they have behaved very badly in which case a shorter period may be appropriate.
Give your lodger notice with Lawpack's "Download Now" Notice to Terminate a Lodger Agreement.
7. What are the tax implications?
The government has a 'rent a room' scheme which provides that the first £4,250 will be tax free. However, you do have to disclose this income on your tax return. If you are on benefit, you will also need to speak to your benefit office, as it will affect your entitlement. Note also that if you have three or more lodgers, you will probably be deemed to be running a House in Multiple Occupation and you may have to obtain an HMO license from your local authority.
Find out more about the Rent a Room scheme: how you can earn £4,250 tax-free each year if you take in a lodger.
Tessa Shepperson, author of Residential Lettings: The Ultimate Guide to Property Letting, is a solicitor specialising in residential landlord and tenant law, and editor of the popular online legal information service landlordlaw.
More Information
Make a Lodger Agreement today with Lawpack's 'Download Now' Lodger Agreement
Read all about taking in a lodger with a Beginner's Quick-Start Guide
Check out your tenant's references with a Lodger Application Form
Keep a record of the rent your lodger has paid with Lawpack's Rent Book
Want to end your lodger's residency? Use our "Download Now" Notice to Terminate a Lodger Agreement
Get real life landlord and tenancy tips and letting experiences here
Get legal forms, tenancy agreements and background information that you need to rent your property here