Taking the government’s lodger scheme, which allows people to earn up to £4,250 per year in tax-free rent, the rent-a-room mortgage adds the money raised to the borrower’s income so that a larger mortgage can be taken out.
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With the minimum required salary of £25,000, at a 4.25 income multiple, the total amount available would be £124,312 for one room let. On a repayment mortgage over 25 years with an initial rate of 5.99 per cent, the monthly payments would be £692 without rent a room, but with the extra £4,250 an additional £18,062 can be added.
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As part of the range, John Charcol has also launched a two-year fixed rate at 5.99 per cent and a two-year tracker which tracks at 0.50 per cent above Base Rate. Both are available with no higher lending charges up to 95 per cent loan-to-value.
Katie Tucker, product specialist at John Charcol, said: “Many people take a lodger in to help pay the mortgage and bills, so offering a formalised solution goes that one step further. This means some can afford to join the property ladder and others can afford two bedrooms when previously they may have been restricted to one.”
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Mike Pendergast, IFA at Zen Financial Services, commented: “For first-time buyers it is useful and it’s certainly innovative. With the income multiples it is good as long as the room is rented out, which some people may cheat their way around.”
