"This may be new territory for many borrowers and will inevitably raise questions about the impact this may have on the lending agreement with their mortgage provider"
The cost-of-living crisis currently stretching the budgets of UK households is forcing many people to reconsider their spending habits and look at ways to rein in outgoings and cut costs wherever they can.
With food prices sitting at a 14-year high, some people are changing where they do their weekly shop or are cutting back on non-essentials, while the soaring cost of fuel and energy may have forced others to reconsider their gas and electricity consumption or take fewer car journeys.
For homeowners and those with a mortgage, soaring inflation and rising interest rates have only served to exacerbate the problem even further, with some borrowers having already seen hundreds of pounds added to the cost of their monthly mortgage repayments.
For others, further rate shock is expected next year, with 1.8 million homeowners seeing their fixed rate mortgages come to an end in 2023, according to data from trade organisation UK Finance, leaving many homeowners potentially facing huge increases in their monthly repayments when they refinance at a higher rate.
To combat the surge in mortgage costs, some homeowners have started to rent out rooms to lodgers to offset the impact of rising payments, and 91% of those who have previously rented an extra bedroom are now considering re-opening their homes once again, according to flatsharing website, SpareRoom.
This could prove to be a prudent move, given that rental prices are also increasing and a growing number of tenants, unable to cover the costs alone, are looking at house shares as an alternative option to solo living.
For brokers with clients that are feeling the pinch or looking for ways to make their mortgage payments easier to manage, renting out a spare room by taking in a lodger could be an excellent way to help to ease the financial burden of rising mortgage costs.
However, this may be new territory for many borrowers and will inevitably raise questions about the impact this may have on the lending agreement with their mortgage provider and whether or not having a lodger is even permitted.
In truth, while some lenders may not accept lodger income because they view it to be too short-term, there are a number of specialist lenders who will accept mortgage applications that include lodger income, provided that proof of income can be demonstrated.
While new mortgage applications that show the owner intends to take on a lodger are also often viable, any projected income is not usually considered as part of the application process. Therefore, it may be worth ensuring your client has a lodger in place before the application process begins if they want to include the income as part of the affordability process.
Norton Home Loans for example, will consider accepting 75% of lodger income when assessing affordability, in addition to a tenancy agreement and three months’ worth of bank statements as proof of receipt. Obviously, terms and conditions vary across the market, and each lender will have its own set of unique criteria on which to base its affordability calculations.
Of course, it is always worth ensuring your client checks any existing mortgage agreement before committing to renting out a room, and subsequently notifies the lender to ensure no breach of contract occurs. For those clients who have taken on a lodger and are looking to remortgage, the specialist lending sector can provide the tailored solutions necessary to cater to their needs.
