Increase Your Borrowing Capacity
Caz Blake-Symes • September 13, 2019
Rent a Room Mortgages
According to ARLA, the professional body for Letting Agents, a first-time buyer can spend £64,000 on rent before buying a home. A Rent a Room Mortgages could change all that! It allows an individual applicant to borrow more by renting out a room and using the rent towards the mortgage payment.
What if you find your ideal home, but your income isn’t quite enough to get the mortgage you need? Well, if the property has a spare bedroom, a Rent a Room Mortgage might be just the answer. If you rent out a spare bedroom the lender will take into account the rental when deciding whether they can offer you the mortgage you need.
This example explains how it works:
- An applicant earns £26,000 pa and wants to buy a two bedroom property for £200,000.
- They have a 20% deposit, so need a loan of £160,000.
- They have approached a few lenders, but they are unwilling to lend this amount based on the £26,000pa income.
- The applicant has a friend who is looking for somewhere to live and is interested in renting the second bedroom; they do not want to buy a property together as they do not want the long-term commitment.
- The friend is happy to pay £400 per month to rent the spare bedroom.
- The applicant speaks with one of our Advisers who calculates that, with a Rent a Room mortgage, the rent would cover about £58,500 of the loan, leaving just £101,500 to be covered by the other income.
Dick Jenkins, Chief Executive of a well-established Building Society said:
“Increasingly people are starting to realise that rent is more expensive than having a mortgage in the current climate. Many young people are happy with sharing their home with a friend and here we have created an opportunity to use the rent of a friend sharing the property to contribute to the affordability of the mortgage. Better still, some can use this arrangement to qualify for tax relief is just one of many inventive ways of supporting first time buyers in what is still a very difficult time for them to get onto the property ladder.”
Some important notes
- The example above is based on a single person with no children and no other debt and assumes a 25-year repayment mortgage. The actual figures will depend on the individual circumstances.
- Rental income from only one tenant will be taken into account and the expected rental will be based on an independent assessment.
- Minimum income of £20,000pa (excluding the rental income), employed or self-employed.
- Up to 50% of the loan amount can be covered by the rental income from letting a room in the property. The balance of the loan must be covered by income.
- The amount being covered by the rent must be no more than 4 x the borrower’s income.
- The property must be fit for purpose – for example, it must have at least two bedrooms and be suitable for occupancy immediately on completion of the mortgage.
- There needs to be a formal agreement with the tenant.
- We recommend that the borrower take tax advice.
- Maximum Loan to Value is up to 85% or up to 95% with collateral.
For further details and to book your FREE CONSULTATION with one of our expert Mortgage Advisers please contact us
Bristol Mortgages Online www.bristolmortgagesonline.com Tel 0117 325 1511
Bath Mortgages Online www.bathmortgagesonline.com Tel 01225 584 888
Exeter Mortgages Online www.exetermortgagesonline.com Tel 01392 690 888
Email info@swmortgages.com
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Adapted from Zoopla’s April 2025 Housing report I mage: The analysis uses average house prices from the house price index and for first-time buyers to assess mortgage payments at different mortgage rates applied to a 30- year mortgage, at different loan-to-values. One emerging trend that we expect to positively support market activity in the coming months is a relaxation in how lenders assess the affordability of new mortgages. While buyers focus on the mortgage rate they will pay, lenders also check whether the borrower can afford a 'stressed mortgage rate' at a higher level than the borrower will pay. While the average 5-year fixed rate mortgage is around 4.5% today, many lenders are currently 'stress testing' affordability at 8-9%. This makes it harder to secure a mortgage without a large deposit. If average mortgage stress rates were to return to pre-2022 levels of 6.5% to 7%, this would deliver a 15-20% boost to buying power. An average first-time buyer with mortgage repayments of £1,020pcm at a 4.5% mortgage rate would typically have to prove they could afford monthly repayments of £1,550pcm at an 8.5% stress rate. If the stress testing is relaxed to 6.5%, repayments would fall to £1,275pcm, boosting buying power. It's a similar pattern for the average homeowner, while the actual impact will vary by lender and type of borrower. This change would consequently supporting demand and sales volumes, helping to clear the stock of homes for sale, rather than boosting house prices. Other existing rules and regulations that remain in place will continue to impact the availability of mortgage finance. Comment from Phil Clark “This is potentially very exciting news and will give borrowers a greater choice of products if these rules are relaxed. Regardless of whether you are a First-time Buyer, Looking to move, remortgage or invest in property, there are a huge range of competitive mortgage deals on the market. I will be delighted to discuss your specific requirements and offer you the most suitable deal!” Please call Phil on 0117 3251511 or email info@swmortgages.com For more information about the Mortgage and Protection products we offer, please visit www.bristolmortgagesonline.com Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
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Adapted from BBC Article by Kevin Peachey, Cost of living correspondent 13 February 2025 Two major lenders launched mortgage deals on Thursday with interest rates of less than 4%, as competition picks up in the sector. The prospect of further cuts in the base rate by the Bank of England has given mortgage providers confidence to reduce their own rates. But the attention-grabbing sub-4% deals by Santander and Barclays will not be available to all borrowers, particularly first-time buyers, and may come with a hefty fee. The return of such deals might prompt other lenders to follow suit after a period of tepid competition. Nationwide, the UK's biggest building society, has said it will reduce some of its rates on Friday. Mortgage deals with interest rates below 4% have not been seen since November. Across the whole market the average rate on a two-year fixed deal is 5.48%. The typical rate on five-year deals is 5.29%, according to latest figures from Moneyfacts. Time to decide Some tracker and variable rate mortgages move fairly closely in line with the Bank's base rate, which was cut to 4.5% a week ago. However, more than eight in 10 mortgage customers have fixed-rate deals. The interest rate on this kind of mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it. About 800,000 fixed-rate mortgages, currently with an interest rate of 3% or below, are expected to expire every year, on average, until the end of 2027. That means a higher monthly bill for many homeowners on their next renewal, but there are signs that the rate they could pay is on its way down. Bank of England governor Andrew Bailey said the interest-rate setting committee expected to be able to cut rates further "but we will have to judge meeting by meeting, how far and how fast". This will affect savers who are seeing lower returns, but could bring better news for borrowers. The Bank's next rates decision is on 20 March. Message from Phil Clark “Regardless of whether you are a First-time Buyer, Looking to move, remortgage or invest in property, there are a huge range of competitive mortgage deals on the market. I will be delighted to discuss your specific requirements and offer you the most suitable deal!” Please call Phil on 0117 3251511 or email info@swmortgages.com For more information about Mortgage and Protection please visit www.bristolmortgagesonline.com