Lodger tax changes boosts rental supply

Under the new rules, from 6th April homeowners can earn £7,500 a year tax free by letting rooms.

Since the announcement of the increase to the Rent a Room Scheme tax threshold to £7,500 per year almost quarter of a million (233,697) homeowners have advertised for lodgers. This is an increase of more than 5.2% on the same period a year earlier.

The data also reveals that August – the month following the Chancellor’s Summer Budget announcement – was the busiest since records began in 2007, with 31,109 people placing ads for lodgers.  

The table below shows average monthly and annual lodger rents in Q4 2015, for the UK's 50 biggest cities. London is the only major city where annual lodger rents are still higher than the new threshold, which kicks in on 6th April 2016:

Matt Hutchinson, director of SpareRoom.co.uk, comments:  “Across the UK, room rents are rising by 5.5% a year. The abolition of tax relief on mortgage interest could force rents up even further as landlords look to cover costs, so this change to the Rent a Room scheme can’t come soon enough.

The UK is in the grip of a housing crisis nobody can see an end to. We’re not building anywhere near enough new homes so we have to make sure we’re using the ones we already have as effectively as possible. Incentivising even a small percentage of homeowners sitting on the 19 million empty bedrooms in owner-occupied properties to let them out would do just that. That’s why we campaigned for this change for six years and are delighted to finally see it come into effect.”

Matt’s top three tips for renting out your room:

1. It’s not just a financial transaction; it’s also about compatibility and lifestyle. Would you prefer a lodger you rarely see, or one you can eat dinner and watch a box set with? Everyone has different expectations, so think about who you’re looking for before you start looking.
2. Get a sense of what kind of rent you might get for your room by looking at others in your area. Don’t forget, the vast majority of lodger rents include bills, so make sure you’ve factored that in when you set your rent.
3. Draw up a lodger agreement² and talk through the arrangements and house rules upfront. Discussing simple things in advance – like whether your lodger can have guests to stay – will avoid problems later on.