The Bath Building Society has launched ‘Rent a Room’ mortgages.
The product allows an individual applicant to borrow more by renting out a room and using the rent towards the mortgage payment.
For example, a single person with no children or debt earns £26,000pa and wants to buy a two bedroom property for £200,000. They have a 20% deposit, so need a loan of £160,000. However, lenders 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 Bath 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.
Rental income from only one tenant will be taken into account and the expected rental will be based on an independent assessment. There is a minimum income requirement of £20,000pa (excluding the rental income), and the applicant can be employed or self-employed.
The maximum LTV is up to 85% or up to 95% with collateral.
Dick Jenkins, chief executive of Bath 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 that Bath Building Society is supporting first time buyers in what is still a very difficult time for them to get onto the property ladder.”