Increasing your income
If you’re struggling to pay your mortgage, it might be possible for you to increase your income to make your mortgage payments more affordable.
Perhaps you could rent out a room in your home, or even rent out your whole home? Read below about some important things to think about if you want to consider those options.
You can also take a look at our booklet ‘How to cope with mortgage arrears‘ for more ideas.
Renting out a room
Do I need permission from my lender?
Most mortgage agreements allow you to rent out a room in your home, but you usually need to get permission from your lender. Check your mortgage agreement to see what it says. If it says you need permission, it’s important to get this before anyone moves in. If you don’t, you could be breaking your agreement and your lender may be able to take you to court.
Will it affect my benefits?
Your benefits will probably reduce if you rent out a room. It might still be worth it, however, as you may end up with more income than you would get on benefits alone. It is important to inform the DWP as soon as you start receiving rent. If you don’t, you may have to pay back any benefits that you weren’t entitled to.
If you are receiving a means-tested benefit like income support (IS), job seekers’ allowance (JSA), or income-related employment support allowance (ESA) the first £20 each week that you receive in rent will not be counted as income. If you also provide some meals to your lodger, only half of what they pay you each week over £20 will be counted as income.
As an example, if you charged your lodger £60 per week for a room and some meals, the first £20 would not be counted as income. Half of the amount you charge above £20 will be counted as income which in this case would be £20. So, all in all, £20 of the £60 per week you are charging your lodger for renting the room would be counted as income when the amount of benefit you are entitled to is being calculated. If you weren’t providing any meals then £40 per week of the £60 the lodger pays would be treated as income.
What if I am on Universal Credit?
If you are receiving Universal Credit, the rent that you get from your lodger is not counted at all as income. You will still need to tell your work coach that you have taken in a lodger.
You will be responsible for the council tax. If you were previously living alone and were eligible for the 25% single person’s discount you will no longer be entitled to that once you have a lodger. You may however be eligible for other help paying your council tax – click here for more information.
Will I have to pay tax?
Under the Rent A Room scheme you don’t have to pay any income tax on the rent you receive if:
- you live in the same property,
- the room you rent out is furnished, and
- the rent you receive is not more £7,500 a year.
If you get more than this amount in rent, you can either pay income tax on the amount over the £7,500, or pay tax on all the rent and claim tax back on any expenses involved (such as buying furniture or providing services).
What are my responsibilities as a landlord?
If you rent out a room in your home, you will be classed as a landlord. Your repairing responsibilities will depend on the type of renting agreement the person renting the room has.
Shelter Cymru doesn’t provide advice to landlords, but you may find some useful information on Citizen’s Advice page Taking in a lodger. It is recommended that you seek advice from a solicitor, a professional association for landlords, such as NRLA Wales or your local council.
Will it affect my contents insurance?
Renting out a room in your home may also affect your contents insurance. Many insurers will increase your premiums, but you should still inform them if you want to be sure that your belongings are protected from theft or damage. If you don’t, your insurance may not be valid.
Renting out your home
You could consider moving elsewhere, and renting your home to tenants (in Wales, tenants are also referred to as ‘contract-holders’). The rent you receive could help to pay your mortgage. This is normally only a good option if it will mean you can afford to pay your mortgage and also pay the rent somewhere else.
You will need to:
- get permission from your lender
- work out how it will affect your tax and benefits
- understand the responsibilities you will have as a landlord.
Do I need permission from my lender?
Most mortgage agreements do not allow you to rent out your home without your lender’s permission. Check your mortgage agreement to see what it says.
If it says you need permission, it’s important to get this before anyone moves in. If you don’t, you could be breaking your agreement and your lender may be able to take you to court. Many lenders refuse to give permission if you have mortgage arrears. Some lenders charge a higher rate of interest if you rent out your home, so your monthly payments could increase. Get debt advice if you have problems negotiating with your lender.
Will my buildings insurance be affected?
Renting out your home may also affect your buildings insurance. Some insurers will put up your premiums, but you should still inform them if you want to be sure that your home is protected. If you don’t, your insurance may not be valid.
Will I have to pay tax?
You normally have to pay income tax on the rent your contract-holders pay. If you later decide to sell your home (without moving back in first) you may also have to pay capital gains tax. This will only be the case if the value of your home has increased since you bought it.
How will it affect my benefits?
If you are on means tested benefits such as income support (IS) or income based job seeker’s allowance (JSA), they will probably be reduced if you rent out your home. If you have a lot of equity in your home, they may be stopped altogether. This is because the rent you receive will be counted as income, and the value of your home (minus your outstanding mortgage and any debts you have) will be counted as capital. However, if you live in an area where rents are high and are able to move to a cheaper area or a smaller property, renting out your home may give you more income than you would get on benefits.
Although your benefits may be reduced, it is important to inform Universal Credit or the DWP as soon as you start receiving rent. If you don’t, you will probably have to pay back any benefits that you weren’t entitled to.
What responsibilities will I have?
If you rent out your entire home, you will have far more responsibilities than if you rent a room to a lodger and share parts of your home with them. You will have responsibilities for things such as:
- repairs and maintenance
- ensuring the property is fit for human habiatation
- getting a valid gas safety certificate each year and other responsibilities in relation to electrical and fire safety
- agreeing the rent and any other conditions
- registering with Rent Smart Wales and, if you are managing the property yourself, obtaining a licence. (If you decide to use an agent to manage the property for you, the agent will need to have a licence)
- if you receive a deposit from your contract-holder/s you must put it in an approved government scheme within a strict time limit.
The rights of your contract-holder/s will depend on the type of occupation contract you have with them. All contracts provided by private landlords are ‘standard’ contracts, unless you give notice that it is a secure contract. If you want her/him to leave, you usually have to give six months’ notice. If they don’t leave after the end of the notice period, you would have to get a court order before they can be evicted.
Shelter Cymru doesn’t provide legal assistance to landlords, and it is recommended that you seek advice from a solicitor, a professional association for landlords, such as NRLA Wales, your local council. or Rent Smart Wales.
Where can I get help and advice?
Working out your options can be complicated. A specialist debt adviser may be able to help you to look at all the possible solutions and put together a realistic and affordable proposal for keeping up with your ongoing mortgage payments and paying off any arrears you have. Contact one of our specialist debt advisers if you need further help.