Despite the fact that thousands of people rent out a spare room in order to generate extra cash, this generally isn’t taken into account by mortgage lenders. People are increasingly renting out a room specifically to give them a hand on their way up the property ladder but it can be almost impossible to factor this into your mortgage plans. Thankfully, all that is set to change thanks to new schemes now available.
The first of these is the Rent A Room scheme from Bradford & Bingley. It works by allowing the main applicant to add £4,250 to their annual income before the usual multiplier is applied (£4,250 being the annual amount of income you can earn by renting a room without paying tax - see our Rent a Room scheme page for further details). The scheme is available to both PAYE and self-employed buyers up to a maximum of 95% of purchase price. Currently it only applies to house purchase and is available via the company’s Standard and Horizon mortgages, available through brokers.
The second is Stroud & Swindon’s Buy To Share scheme. This works in the same way as Rent A Room in that it allows you to add £4,250 to your income before multiplying but also allows you to add £2,125 for a second room to be rented out. In addition it’s available as an option on all of Stroud & Swindon’s residential mortgage products.
Thirdly John Charcol offer a 'rent-a-room' mortgage which, again, allows you to add £4,250 onto your salary. The two options are a two-year fix at 5.99% with a fee of £599 and a two-year tracker which tracks at 0.5% above the base rate (£699 fee applies). Buyers must earn £25,000 or more and you can borrow up to 4.25 times on a single income or 3.25 on joint incomes.
For more information and advice, see our book "The Essential Guide to Flatsharing"
