Lodger or tenant?

[Phil C]

Dear all

I'd like to ask your options/advice on a situation with a friend.

He is in the process of buying a one bedroom flat and has a plan to rent the bedroom to a lodger and keep the living room locked for himself but not actually live there.

My belief is if you let a room to a lodger you have to live in as a landlord but his response is he can just pretend he doesn't come home every night and the lodger can't prove he doesn't live there anyway. Obviously the lodger will be aware they live alone with exclusive use of the property except one room.

I feel he is taking a slap dash approach and not thinking about the wider implications of his plan, which is where I ask your assistance. I also wonder if he needs a buy to let mortgage to do this? His idea is they are too expensive and he can just pretend he didn't know he needed one if in fact he does.

Can anyone list implications if he goes ahead with this so I can show him it isn't as straight forward as he thinks? Is what he is planning to do even possible?


Thank you.

[jpkeates]

Can anyone list implications if he goes ahead with this so I can show him it isn't as straight forward as he thinks? Is what he is planning to do even possible?

There's a big difference between possible and legal.

It's possible to drive at 120 miles per hour, but it isn't legal.
Some people do it anyway and some people get away with it.

There are three risks that your friend should consider.
Mortgage companies retain an organisation called National Hunter to prevent and locate fraud - and buying property to let on a residential mortgage (because it's usually cheaper) is quite a common fraud.
Once you're on a Hunter blacklist, you're pretty much toast for future mortgages (and there are other implications if you ever need business funding or other lending).
Of course, they might not notice your friends particular case, but it's surprisingly easy to find that someone doesn't live where they say they do if you have access to insurance and credit card data - which they do.
The occupants have to remember to live like lodgers, otherwise they can trigger the kind of data patterns that the Hunter network is pretty much set up to look out for - a broadband contract linked to an address with a residential mortgage in the wrong name, for example.

The second is linked to the other things that you have to lie about, which are usually less important until they really matter. Like insurance, which will normally be fine, until you need to make a serious claim.
At which point, the stuff on the application form is likely to be examined, in the hope that the insurer can avoid paying out.
Utility bills and council tax can be difficult to administer.

From a lodger/landlord position, the risk is simple.
The fraud depends entirely on the occupant(s) going along with the deception, which is definitely not in their interest (unless the rent is particularly low).
Lodgers have very few rights, which won't matter if everything goes smoothly.
But, if it doesn't can get messy very quickly.

Lodgers don't need the same (quite complex) set up admin as tenants and, if they don't want to leave when the landlord wants them to, can be next to impossible to evict.
If the "lodger" ever needs to claim benefits, or wants broadband installed or is chased to pay council tax, or needs to prove to someone they're entitled to live where they do, they can inadvertently point the authorities at the landlord.

But of course people get away with stuff like this all the time.
Everyone's got a mate who drives with no insurance or who thinks people who follow the rules are idiots.

[Hudson01]

As said, all possible, but like train surfing... there are risks, just how much risk does your friend like ? If he gets the wrong '' lodger '' then he could find all the locks changed and the room he had excluded could be suddenly ' included '.

The world are full of people who game the system, a lot get away with it, and lot do not. You take your chances.

[jpkeates]

If he gets the wrong '' lodger '' then he could find all the locks changed and the room he had excluded could be suddenly ' included '..

It would be ironic if one chancer was done over by another!

[Phil C]

Thank you for the responses. It does seem a risk. I'm even wondering if now is the right time to buy full stop the way the economy is right now.

[Hudson01]

Right now, unless i had too i would not make any major purchases at all. A great many landlords are looking to sell let alone buy. It is a case of waiting and watching and then making a decsion, each of us are at a different stage in our lives so what is right for one will not be so right for the other.

If your friend attempts to '' pull a fast one '' then they may get away with it, but given the market if they get the wrong person ...... they will be so far up the river with no hope of a paddle it will make them dizzy.

[DoricPixie]

I think we are all in agreement that your friend sounds like a chancer.

If I was going to enter into this sort of arrangement with a landlord where all I was getting was a bedroom, bathroom and kitchen, I would expect the rent to be very cheap which begs with question why is your friend doing this? In terms of investment your friend would get more money letting the whole property instead of locking off part of the property to pretend he has a lodger. Yes, there's more paperwork involved but I'd take that over getting a higher rental income and not leaving an open goal for the tenant to give me a good arse kicking further down the line should things turn sour.

I'd also be looking at buying at least a 2-bedroom property over a 1-bedroom property as I think, rightly or wrongly, they make better investments that 1-bedrooms and stuidios.

[Lawcruncher]

The cunning plan is doomed to failure.

[Phil C]

I think the idea is that income from the lodger will pay most of the bills leaving just the mortgage repayments. And then in 5 years a rethink on selling or staying but as you say, I'm aware myself a lot of landlords are selling rather than buying right now. Personally I just don’t see the point in buying a 1 bedroom place just to get a lodger. He’s adamant the lodger won’t be able to prove he doesn’t live in anyway. I’m assuming you don’t need a buy to let just for a lodger anyway?

[Hudson01]

I’m assuming you don’t need a buy to let just for a lodger anyway?

Not just don't you need one, you cannot have one ! With a BTL mortgage you cannot live in it yourself, so you would have a residential mortgage, and in terms of the whom ever he gets in all he has to do is change the locks when he is out and hey presto..... he is the tenant. It is the kind of plan that Baldrick would be proud.

[Phil C]

You'd think so I agree. It does almost seem the potential pit falls are unlikely to be off putting enough I fear.

[jpkeates]

He’s adamant the lodger won’t be able to prove he doesn’t live in anyway. I’m assuming you don’t need a buy to let just for a lodger anyway?

The lodger wouldn't have to prove anything.
If there's an issue, your friend would have to prove that he does live there, which is quite a different set of problems.

It's always the detail that catches people out.
The "lodger" doesn't like the electricity or broadband supplier and tries to change them.
Or they fancy Sky.
Or they want to claim benefits.
Or someone else in the building objects to some noise (or a pet) and points out that letting the flat is against the lease covenants.

This is one of those plans that depends on everything working perfectly and everyone supporting the "story" all the time.