Things to consider when taking in a lodger

Property Reporter
21st June 2022

Lodgers contribute £57.5m a year to England’s rental market, providing a reliable avenue of additional income for homeowners in the face of a cost of living crisis, according to research from Total Landlord Insurance.

Despite this, the latest data shows that the number of households with a lodger has actually declined in recent years. The number of those with two or more lodgers is down 33% while homes with just one lodger are also down 20%.

At a time when money is tight, taking in a lodger enables homeowners to supplement their monthly earnings, dipping a toe into the rental sector but without having to adhere to the stricter rules and regulations that come with a buy-to-let investment - not to mention the budget required for a second property.

The figures suggest it can be a worthwhile endeavour from a financial standpoint, as the average lodger pays £438 per month for a room, equating to an annual rental income of £5,256.

As it stands, this means lodgers generate £57.5m a year in rental income and that’s just across England’s rental market alone.

It’s also worth knowing that the Government’s ‘Rent-a-Room Scheme’ allows live-in landlords to earn £7,500 tax-free by letting a spare room in their property if providing furnished accommodation either in their main or only home. You can find out more about the ‘Rent-a-Room Scheme’ at the Government website here.

Things to consider

While taking in a lodger is a relatively simple process, there are a few things homeowners need to be aware of before taking the plunge.

First, your mortgage provider, local authority and insurance provider needs to be informed that a lodger will be moving into the home. What’s more, if the rental income generated is going to exceed £7,500 a year, HMRC also needs to be informed.

In terms of insurance, there are no hard and fast rules as to how much lodger insurance will cost, but some providers will cover up to three lodgers for no additional fee whatsoever. However, it’s important to get cover that includes liability insurance. This means you’re covered should your lodger try to sue you for an injury sustained within the home, via a faulty electrical outlet, for example.

A landlord is not responsible for their lodger’s personal belongings, so if the lodger wants to insure their valuables, they need to arrange it for themselves.

Another serious consideration should be personal privacy. While the lodger will have their own room, they will be sharing the communal spaces in the home, including the kitchen, bathroom, and living room.

The homeowner needs to be sure that they are comfortable with this and then needs to thoroughly vet any lodger applicants to ensure that there is a reasonable personality match and that living together isn’t going to cause aggravation for either party.

Eddie Hooker, CEO of the Hamilton Fraser Group, says: “With the cost of living crisis continuing to weigh heavy on the nation, a lodger can be a win-win situation. Not only do they bring an additional boost to the household’s monthly income, but lodging can also provide a more affordable path for the lodger, compared to the cost of renting a one-bedroom property.

"Despite this mutual benefit and relative simplicity, it’s really important to keep everything fully above board.

"This means ensuring everyone who needs to know about the situation is told in good time, including your mortgage provider and your insurance provider, who should be able to adapt your policy to cover the presence of a lodger.

"Some insurance providers will charge a premium for lodger cover, but others, including Total Landlord Insurance, will not. So it’s well worth checking before taking out a policy if you think you may take in a lodger at some point in the future.”

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