If you have a spare room in your property, it can be turned into a useful income stream if you rent it out.
This can be on a longer-term basis to a lodger, or over short-term periods through sites like Airbnb, particularly if you live in a particularly convenient area for sporting or cultural events. For example, properties in Wimbledon are especially popular during the tennis tournament, while rooms in Edinburgh go quickly during the fringe.
However, before you race off to list your room for rent, it’s important to think carefully about how taking on a tenant - whether over the short or long-term - will impact your home insurance.
Speak to your insurer
It’s an excellent idea to speak to your insurer from the outset to let them know you are looking to let out your spare room.
When an insurer prices your policy, they do so based not just on the house itself but also the people living there. You’ll remember that you will have to answer questions like whether you’ve had any convictions in the past few years - this is because the insurer wants an idea of you and the people you live with, to work out how likely they are to face a claim.
If you have people living with you, but you didn’t mention them or their past when taking out the policy, then you may find that your home insurance is invalidated.
Exclusions and price rises
Your insurer may want to adapt your policy slightly if you intend to take in a lodger, whether for the short or long term.
For example, as the chances of making a claim go up with the addition of a lodger, your premium will likely go up in price too.
This may also be down to needing to add extra features into the policy, for example liability cover should your tenant injure themselves in the property and decide to take you to court for damages.
Just as new features may be added to your cover, some things that were included may be excluded if you want to take in a lodger. For example, you may no longer be covered for a theft if there’s no sign of a break-in, nor to get items replaced if they were broken by the lodger.
The tenant needs their own cover
Another really important element to bear in mind is that the lodger will need to arrange their own contents insurance policy. Their possessions will not be covered by your existing policy, so they will need to sort out cover independently.
If you are going to let out your room on a short-term basis through a site like Airbnb or Home Away, it’s worth checking what protection they offer should your home be damaged by your guests.
For example, Airbnb has a ‘Host Guarantee’ which it claims will reimburse hosts for damage worth up to £600,000. It’s important to remember that this is not the same as an insurance policy though - just because the site offers this sort of protection, you still need to have a proper insurance policy in place and inform the insurer that you intend to let out a room.
It’s not just the insurer you need to speak to
Remember, if you’re going to let out some space in your home then your insurer isn’t the only person you’ll need to inform.
You’ll also need to speak to your mortgage lender. Most mortgage lenders set out in their terms and conditions that they need to be approached for their consent before you can let out a room. This can be particularly tricky with short-term lets - a study by Which? found that most high street lenders’ terms and conditions are incompatible with short-term letting.
The Rent a Room scheme
Finally, if you are going to take in a lodger, you can ensure that you enjoy up to £7,500 in rent without paying any tax by signing up to the Government’s Rent a Room scheme.
The tax exemption is automatic if you earn less than that from your lodger, but if you bring in more then you’ll need to complete a tax return and formally opt into the scheme.