Today I’m highlighting quite a traditional way of making extra money, but none the worse for that.

If you have a spare room (or rooms) in your home that you don’t mind letting out, you can generate a steady income by doing so. 

Even better, you can earn up to £7,500 a year (gross) tax-free under the government’s long-running Rent a Room Scheme. 

The Rent a Room Scheme

Anyone with space in their own home is allowed to use this scheme. You can let a single room or an entire floor.

You don’t even have to be the home-owner yourself. If you’re a tenant, you can sub-let a room, as long as your lease allows you to do this.

There are some restrictions, though. Most importantly, the accommodation must be furnished and it must be within your main residence. And you can’t claim under the scheme for self-contained flats even if they are in your own home.

• In addition, if you have a mortgage you will need permission from your mortgage provider. You should also request permission from your home insurance provider.

Money matters

If your gross rental income is under the £7,500 annual limit you don’t have to take any other action and can keep all the money tax-free. 

You don’t even have to tell the taxman unless you fill in a self-assessment form already (in that case you’ll need to enter the rental income on your return but won’t have to pay any tax on it).

One important thing to note is that the £7,500 a year tax-free allowance is for total rental income. You aren’t allowed to deduct any expenses from this, e.g. repairs or redecoration.

If you earn over £7,500 a year from renting you have two choices. One is that you can keep the first £7,500 tax tree under the Rent a Room scheme and pay tax at your highest marginal rate on the balance above this (that’s 20% for basic rate taxpayers, 40% for higher rate and 45% for additional rate – different rates apply in Scotland). This will probably be the best option for most people.

Alternatively, you can opt out of the scheme altogether. In that case you will be treated like any other small business. You will be taxed on your entire rental income, but allowed to deduct all reasonable expenses before tax is charged on what is left. This will be advantageous if you have major property-related expenses to cover. 

You can choose which option will be best for you each year, so it’s important to keep detailed financial records. More information can be found on the official government website.

Short term letting

If you don’t want a permanent – or semi-permanent – lodger, another option that has become hugely popular in recent years is short-term letting to budget travellers and people who prefer a more personal alternative to hotels.

At the forefront of this trend has been Airbnb. This site lets you offer anything from a sofa in your living room to your whole house. You can set your own rent, and decide which would-be guests you want to accept.

In most cases Airbnb charges you 3% of whatever you charge your guests (they also charge guests a service fee of around 14%). You get paid via Airbnb approximately 24 hours after your guest checks in. You can see more details about Airbnb fees and charges here.

Income from Airbnb rentals can also be claimed under the Rent a Room scheme, so long as you meet the general requirements mentioned above. This applies even if you rent out your whole house for a short period, as long as it clearly remains your main residence.

Short-term letting can obviously work well in holiday areas, but it can be done elsewhere too. For example, my sister Annie lives near Oxford and sometimes offers accommodation in her home through Airbnb to visiting academics and people coming to business meetings and conferences in the city.

There are other, similar options to Airbnb you may like to check out as well. They include Vrbo, Homestay, Booking, and more. They all operate a bit differently and offer a different range of accommodation and services (e.g. Vrbo is specifically for holiday rentals).

Closing thoughts

If your circumstances allow it, letting a room in your home can be a great way of making some extra cash. It will provide you with a regular, ongoing source of income, which could prove a lifeline in these financially challenging times. And you can choose between getting a full-time lodger or offering short-term lets. The latter is likely to entail a bit more work but may suit some people better.

As always, if you have any comments about this article, please do leave them below.

Nick Daws writes for Pounds and Sense, a UK personal finance blog aimed especially (though not exclusively) at over-fifties.

Photo by SHOP SLO® on Unsplash

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Mouthy Money Your Questions Answered panelist Elena Todorova answers a reader’s question around deciding when the right time is to buy a home.

Question: I’m planning on buying my first house this year, but with interest rates soaring, is it better to wait and if so, until when?

Answer: First, and foremost, a house is a home but then, it is also an investment.

In normal times, when interest rates are low and house prices are rising, it makes sense to become a homeowner and to occasionally check on websites like Zoopla to see how the value of your home has grown.

However, you are currently looking to buy in a very different market from the one we have got used to over the past 14 years.

Although interest rates are on the rise, there are also expectations that house prices will fall and therein lies an opportunity to time your purchase and buy at the lower end of the market.

Depending on how soon you wish to buy, you might want to keep your finger on the pulse of your local market: follow the properties coming up for sale, see if there any reductions, speak to agents and get to know them well.

I always recommend using price per square foot or square metre to compare prices. Of course, you need to factor in other aspects such as the state of the house, whether it’s outdated versus newly refurbished, the location, size of garden, or whether it’s freehold versus leasehold. You need to be patient and do your research properly, but it should pay off.

The type of property is also important. A house is likely to retain its value better than a flat, even if they are in the same location.

If you are purchasing a flat, the saturation of the development will also influence how much prices will be affected in a downturn, how much they could fall and how quickly. You can still get a great place at competitive price, but perhaps you will have to wait a bit longer for prices to then recover.

Mortgage rates are on the rise, and some shot above 6% following the shock mini-Budget in September. The market has since steadied, with five-year fixes back below 5% and some expectations that they may reduce below 4% in coming months.

Current expectations from the Office for Budget Responsibility (OBR) are that Bank of England’s base rate may still increase to 5% next year, when it is expected to peak before falling back. It is unlikely interest rates will return to the rock-bottom levels of recent years, with expectations that they will steady around 3-4%.

Your dilemma is whether to buy a property at a high(er) interest rate or continue to rent (assuming you don’t live with relatives). If you continue to rent, you may also have to allow for higher rents in coming months as they are on the rise, which may eat into your deposit.

Timing the market and trying to predict when property prices are at their lowest is notoriously difficult and there are many tales of people who have missed while they took a “wait and see” approach.

Ultimately, if you have found a property you want to buy, are able to negotiate a good price and can afford to buy it, then now is as good a time as any to get on the ladder.

Owning a property provides a steady home, while you can secure your monthly payments with a fixed-rate mortgage for a number of years as your expenses and income stabilise.

Rates have increased but with a potential correction in the housing market, you may be able to grab yourself a bargain and benefit from future house growth too.

Elena is a fully qualified IFA

Elena is a fully qualified IFA (Independent Financial Adviser) specialising in residential and investment mortgages for UK residents, foreign nationals and ex-pats. With over 20 years experience in London and UK mortgage market, she has the expertise to deal with diverse and often complex cases.

Photo by Naomi Hébert on Unsplash

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Millions of households on universal credit could get access to a cut price broadband deal from BT.

The telecomms giant says it will offer a new package for those claiming benefits through universal credit costing just £15 a month, compared with £32.99 normally.

Four millions households will be eligible for its new ‘Home Essentials’ package, which launches in June and offers speeds of up to 36 megabits per second (mbps).

While BT’s new deal is likely to be one of the best on the market when it launches, it always pays to compare offer from other providers before signing up.

Rental market ‘uncertain’

Building Society Nationwide’s buy-to-let mortgage business Mortgage Works has described the rental market as ‘unusually uncertain’.

It found in its latest survey that some 40% of renters are looking to move as a result of the pandemic, while the number of households renting privately fell for the third consecutive year from 19.3% to 18.7%.

The results reflect changes in the market caused by coronavirus with Londoners most likely to want to move, in particular to somewhere with green spaces.

Provident Financial to stop offering high-cost doorstep loans

High-cost credit provider Provident Financial is ending its doorstep lending practices after 141 years of business, according to The Mail on Sunday.

Doorstep lenders are high-interest loans where the lender comes to your house to collect your monthly repayments. They are popular with people who have poor credit histories and who struggle to access credit elsewhere.

The firm is also reportedly closing its pay day lender business Satsuma to focus on its credit card and car finance offerings.

Experts have suggested that Provident has taken the decision following political and regulatory pressure on the high-cost loan sector.

While the firm has not confirmed the speculation, it says it will update shareholders on the results of its ‘operational review’ on 10 May.

Listen to Mouthy Money co-editor Edmund Greaves discuss all these stories on talkRADIO with James Max:

Photo by Dmitry Sidorov from Pexels

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LISTEN: Mouthy Money co-editor Edmund Greaves appears on talkRADIO to discuss why more older people are renting, how expensive your M&S shop on Ocado might be and whether switching to a four-day work week could save the economy and created half a million jobs. Listen in the Soundcloud player below.

With thanks to talkRADIO

Image courtesy of Marks & Spencer

The post LISTEN: Is M&S cheaper on Ocado, older renters, and could a four-day work week save the economy? appeared first on Mouthy Money.

With thanks to talkRADIO

Photo by Karolina Grabowska from Pexels

The post LISTEN: Ryanair cuts flights, top-rated banks and why rent is getting cheaper in London appeared first on Mouthy Money.