Property: Buy-to-share gives live-in landlords a lift

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The Independent Online

If you're grappling to grab hold of the UK property ladder, every pound counts.

The "buy to share" home loan facility recently launched by Stroud & Swindon building society looks to help first-time buyers by factoring in the annual income generated from renting out a room when calculating how much they can borrow.

Buyers with one spare room can borrow up to an extra £4,250; should they have two rooms to rent, a further £2,125 can be added to the overall loan.

David Greenleaf of Stroud & Swindon says the deal has been introduced: "to bridge affordability shortfalls for first-time buyers while still lending responsibly - although the scheme is available to remortgagers too."

The £4,250 benchmark - equating to £327 in rent each calendar month - is not an arbitrary figure. It's the allowance that homeowners and even those sub-letting can receive tax-free under the government rent-a-room scheme, which was launched in the early 1990s in an attempt to tackle the housing shortage.

Mr Greenleaf insists Stroud & Swindon's "buy-to-share" deal is just an additional feature in its existing range of loans, not a way to extend borrowing.

"The governing factor won't be that the scheme lends more but how the mortgage deal itself stands up in terms of value. It's [the interest] rate that first-time buyers are interested in."

Stroud & Swindon typically lends 3.5 times a single salary but first-timers with a healthy credit rating could qualify to borrow four times salary. This means that if they earned £25,000, they could borrow £100,000 as a standard maximum, rising to £104,250 for a two-bed property and £106,375 for three bedrooms under the buy-to-share scheme.

Before factoring in extra income for lending purposes, Stroud & Swindon requires written confirmation that a lodger has been found and of how much rent they will be paying.

"This works if it is a friend moving in or you are remortgaging and already own the property," warns Ray Boulger of broker John Charcol. "But most people take lodgers they don't know, who will want to view the room before committing, so it could be a catch-22 situation."

Stroud & Swindon's flexible policy is a sign of the times, according to David Whittaker of buy-to-let broker Mortgages for Business. "Not so long ago, lenders would charge a premium on the mortgage rate if you told them you wanted to rent out a room, or would confine you to specific mortgage deals.

"The fact that borrowers are no longer penalised or restricted for this is a major cultural statement."

Mortgage brokers generally welcome the scheme but point out that if you simply want to increase your borrowing capacity there are lenders that offer more.

James Cotton of broker London & Country says that Abbey, for example, lends up to fives times income, and some lenders also take future professional earnings into account. But he adds: "When it comes to living costs, £400 or so a month in rent can really help."

Bradford & Bingley offers a similar rent-a-room mortgage facility but restricts borrowers to letting only one room for a maximum of £4,250.

Jo Cerroni, a 32-year-old gallery owner, rents out a room in her home in Ashford, Kent, to her business partner, 27-year-old Jessica Nash. She has been on the property ladder for nine years and finds the rent-a-room allowance invaluable in making ends meet.

"Jess pays considerably less than the £4,250 tax allowance but the contribution still comes in handy," says Jo. "Household costs are pretty much the same for two people as they are for one, so rental income can make a big difference.

"Having more income also means you can qualify for a better mortgage rate later down the line."

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