Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in and we’ll get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at [email protected].
Question: I’m interested in buying a two-bed property that I can stay in one of the rooms in, and then let out the other room or convert the second bedroom with an en-suite. Which sort of mortgage do I need to get to do this? I’m in my late fifties and have a pension, but I’m looking to use this to supplement my income when I retire.
Answer: Buying a two-bedroom property and letting out one of the rooms can be a smart way to supplement your income, particularly as you approach retirement.
Many homeowners choose this route to make homeownership more affordable while generating additional income.
The type of mortgage you need will depend on how the lender classifies having a lodger and how your pension income is assessed.
If you plan to live in the property as your main residence and rent out a single room, you will still be eligible for a standard residential mortgage. Many lenders allow homeowners to take in a lodger without requiring a specific buy-to-let mortgage, though it’s always best to check lender policies, as some impose restrictions on rental arrangements.
The Government’s Rent a Room Scheme allows you to earn up to £7,500 per year tax-free from renting out a furnished room, making this a particularly attractive way to supplement your pension income.
If you are looking to convert the second bedroom to include an en-suite, this is unlikely to affect your mortgage eligibility, provided the space remains part of your home and does not become a fully self-contained unit.
However, if structural changes are involved, such as installing additional plumbing, separate entrances, or kitchen facilities, lenders are likely to require additional information before granting a mortgage.
Making significant alterations could change how the property is classified, particularly if the space becomes more independent from the main residence.
Some lenders may treat it as a home with an annexe, which could limit mortgage options, while others may view it as a straightforward upgrade that does not impact lending criteria.
It’s also worth checking whether any planning permissions or building regulations apply, particularly if you are adding a bathroom or altering drainage systems.
Your age and retirement income will also play a key role in mortgage affordability. Many lenders now offer later-life mortgages, such as retirement interest-only (RIO) mortgages or lifetime mortgages, specifically designed for borrowers in their fifties and beyond.
With a RIO mortgage, you only pay the interest each month, and the loan is repaid when you sell the property, move into long-term care or from your estate. Some lenders also accept pension drawdowns, annuities, or rental income when assessing affordability, which could help increase borrowing potential.
If retaining flexibility is important, equity release schemes may be another option, though they come with long-term considerations that require careful planning.
Since every lender has different criteria, working with a mortgage broker who specialises in later-life lending would be recommended. They can help you navigate lender requirements, assess your affordability based on pension income, and determine whether taking in a lodger aligns with mortgage conditions.
If you are making modifications to the property, they can also advise on lenders that are more flexible with home improvements. With the right set-up, this could be an effective way to secure homeownership while generating additional income in retirement.
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