Does working from home affect your mortgage?

Many of us have now experienced working from home during the lockdown that resulted from the coronavirus pandemic. This has changed many people’s opinions about returning to the workplace and the benefits of working from home. In turn, more and more people are looking at work-from-home opportunities. But how does this affect your mortgage as a homeowner?

Notify your lender

Whatever business you decide to run from your home, you need to tell your lender. This is to ensure that you’re not in breach of the mortgage terms. Some residential mortgages prohibit running a business from your home. Therefore, it’s essential to check and get permission rather than risk the consequences. If you don’t do this and get caught, you could end up having to repay the entire mortgage immediately.

As long as you’re not altering your property considerably, such as adding an extra room to use for your business, your lender should agree to you continuing with your residential mortgage. If you work online from a home office, for example, this doesn’t normally affect a residential mortgage. There are, however, instances when your residential mortgage will need to change to a semi-commercial mortgage.

You may need to switch to a semi-commercial mortgage

Significant alterations made to your home for business purposes will necessitate a switch to a semi-commercial mortgage. For example, you may decide to convert part of your home to a workout studio or set up a small clinic in your home in Bexleyheath.

The amount of floor space used for business to warrant a change in mortgage classification differs between lenders. Generally, over 30% would mean a semi-commercial mortgage is needed.

Other aspects to check when working from home

As well as getting permission from your lender, there are other factors to consider, including legal, tax and insurance implications.

Legal issues

There may be restrictive covenants in the title deeds that prohibit certain uses of your home. Check with your solicitor or the Land Registry before you start working from home.

If you want to make alterations to your property, get in touch with your local planning office to find out if you need planning permission.

The local council can advise you of other criteria you need to adhere to, depending on the type of business you plan to operate from your home. A specific licence may need to be obtained to run your business from your home, for example. You might need permission if customers will be visiting your home regularly or you’ll be getting lots of deliveries. You might also need the council’s permission if you want to advertise your business from your home address.

Tax implications

You may need to pay business rates on the section of your home used for business while you’ll continue to pay council tax on the rest of it. Contact the Valuation Office Agency to find out the rateable value of your property. If it’s less than £15,000, you might be eligible for small business rate relief.

If you belong to a business partnership or are a sole trader, your business costs can be included in your Self Assessment tax return.

When selling your home, you may be liable to pay Capital Gains Tax on the part that was used for business.

Insurance considerations

Contact your insurance company to check whether your home insurance covers your business or if you need to take out business insurance. When working online from your laptop, this shouldn’t be considered an increased liability. In fact, your insurance company may feel there is less risk with you working at home. There’s less chance that your home will be burgled, for example, when you’re there all day.

However, if your business involves expensive equipment or you keep stock in your home, your insurance rates could increase to cover the extra risk. This is because the items are perceived as an increased risk of theft or fire.

If you have visits from customers, your insurance company may insist you have public liability insurance. You could decide to tutor clients in your home in Bexley, for example, or run a hair salon from a room in your home. This covers you in case any customers have an accident or get injured at your property. The extra visitors to your home also increases the risk of wear and tear to the property as well as damage to or even theft of your belongings. Because of this, you may be faced with paying higher premiums.

If you choose to have staff working for you, you’ll need to take out employers’ liability insurance too.

Is it worth working from home?

Absolutely! As already mentioned, if your business doesn’t affect the structure of your property and you have permission from your lender, your mortgage should stay the same. If you think you have to change to a semi-commercial mortgage, speak to a professional mortgage broker first for unbiased, expert advice.

You can also benefit from savings when working from home. As well as saving money on your daily commute, you can recoup some of your living costs. These can include parts of your broadband, telephone, lighting, heating and council tax costs.

With permission from the relevant parties, there’s no reason why, as a homeowner, you shouldn’t take advantage of a work-from-home opportunity.