UK Lodger Room Supply Sees First Decline Since Pandemic

Recent findings from SpareRoom indicate a 2.5% year-on-year decrease in lodger room advertisements in January 2026, marking the first decline since the onset of the COVID-19 pandemic. Landlords who rent out rooms within their own homes represent approximately a quarter of the flatshare market supply, but this segment has diminished in recent years. A key factor is the government’s failure to update the Rent a Room scheme tax-free threshold since 2016, despite significant increases in average room rents.

Impact of Rising Rents and Static Tax Threshold

The Rent a Room scheme currently allows landlords to earn up to £7,500 tax-free annually from renting out rooms. This threshold was last increased in 2017, coinciding with a peak in lodger supply. At that time, the average monthly room rent was £573, comfortably within the tax-free limit of approximately £625 per month.

However, average UK room rents have surged by 29% over the past five years, rising from £580 per month in late 2020 to £749 per month in late 2025. This increase means many lodger landlords now exceed the tax-free threshold, potentially deterring them from renting out rooms due to higher tax liabilities and administrative burdens.

Calls for Government to Update the Rent a Room Scheme

SpareRoom has urged the government to raise the tax-free threshold to reflect current rental market conditions. Matt Hutchinson, SpareRoom’s director, emphasised the importance of protecting rental supply during the ongoing housing crisis. He stated: “The last time the Rent a Room scheme was altered, supply rose and remained at healthy levels until the pandemic. A booster shot in the arm is what’s needed now.”

Hutchinson also highlighted the deterrent effect of the tax return process on potential lodger landlords and called for the threshold to be adjusted accordingly. Additionally, he advocated closing the loophole that allows holiday lets to exploit the scheme, arguing that short-term holiday rentals should not be incentivised when there is a significant imbalance between housing supply and demand.

Potential to Unlock Affordable Housing from Empty Bedrooms

SpareRoom estimates there are 28 million empty bedrooms across England, Wales, and Scotland. Renting out just 5% of these could provide affordable accommodation for approximately 1.4 million people. This represents a substantial opportunity to alleviate housing pressures if appropriate incentives and policy adjustments are introduced.

Financial and Social Reasons for Renting to Lodgers

The survey reveals that over half (51%) of lodger landlords rent out rooms to help cover everyday expenses such as food, bills, and transport costs. A quarter (25%) rely on lodger income to pay their mortgage, while 28% use it to save for retirement or supplement pensions.

Beyond financial motivations, 22% of landlords cite companionship or friendship as a reason for taking in lodgers. Nearly a quarter (23%) value the security of having someone at home during absences, and 9% appreciate assistance with tasks like pet care or plant watering.

What This Means for Landlords and Agents

For landlords and letting agents, the decline in lodger room supply amid rising rents and unchanged tax relief signals a need to monitor the evolving regulatory environment closely. Encouraging lodger arrangements can provide flexible, affordable housing options and additional income streams, but current tax thresholds may discourage participation.

Advocacy for updated tax incentives and clearer guidance on the Rent a Room scheme could help maintain or increase lodger supply, benefiting both landlords and tenants in the private rented sector.

Suggested internal link anchors

• Rent a Room scheme
• lodger landlords
• flatshare market
• tax-free threshold
• rental supply
• housing crisis
• holiday lets regulation
• affordable housing
• mortgage payments
• landlord income
• tenant security

TLA update

TLA is launching a new Trusted Partners Hub in Q1 2026, featuring verified and approved service providers selected to support landlords, tenants, and property management businesses. We are inviting legal, trades, insurance, financial, mortgage, tenant screening, and other service providers to register their interest here: https://landlordassociation.org.uk/become-a-tla-service-partner/