Exploring the Decline in Rooms Available to Lodgers

The Current Landscape of Lodger Accommodation

The availability of rooms for lodgers—particularly in homes with live-in landlords—has recently seen a decline. According to research conducted by SpareRoom, there has been a 1.4% drop in such rooms in the third quarter compared to the same period last year. Despite this dip, rooms in properties with live-in landlords form a substantial part, accounting for 29% of the flatshare market.

Why the Decline?

There are several factors contributing to the fall in available lodger rooms:

• Cost Deterrents: The current tax-free threshold under the Rent a Room scheme in the UK allows income up to £7,500 per year from renting furnished accommodation tax-free. However, SpareRoom argues that this is not reflective of today's rental values and may discourage homeowners due to the need for tax declarations once the threshold is exceeded.
• Legislative Gaps: The lack of a minimum stay requirement under the scheme allows holiday lets to benefit from tax relief meant for longer-term lodging, potentially skewing the market.

Potential Solutions and Benefits

SpareRoom suggests that increasing the tax-free threshold could incentivize more homeowners to provide rooms to lodgers. Evidence from the past shows that a rise in the threshold led to a significant increase in lodger room availability.

• Tax Threshold Impact: The last increase in the Rent a Room threshold in 2015 resulted in a higher supply of rooms.
• Comparison with Ireland: The anticipated increase in Ireland’s equivalent tax-free threshold could serve as a model for the UK to follow.
• Minimum Stay Requirement: Implementing a 31-day minimum stay could ensure that the tax benefits are used for genuine lodger arrangements rather than short-term holiday lets.

Looking Forward

There are approximately 28 million spare bedrooms across England, Wales, and Scotland. If even a small percentage of these were rented out, it could significantly address housing shortages. Encouraging homeowners by updating the Rent a Room scheme terms could make a substantial difference.

Your Considerations

Before deciding to rent out a room, homeowners should consider not just the tax implications, but also other costs associated with homeownership, such as maintenance, buildings insurance, council tax, and potentially increased utility bills.

Your home may be repossessed if you do not keep up repayments on your mortgage.

We're here to help you navigate these considerations and explore whether taking in a lodger aligns with your financial goals. For further advice, reach out to us at Anderson Reed.