Since the government introduced the Rent A Room scheme back in April 2001, the initiative has worked as the proverbial 'nice little earner' for owners of a private residence.

A report showing a reversal of the trend for single applicants being a major force in the first-time buyer market could see young hopefuls considering rental income as a means to counter the effect of interest rate hikes. The IFG Mortgages report suggests that, in the third quarter of 2006, the proportion of single applications fell from 40% to 35%, reflecting the long-held view that this group would be the first to suffer from any rise in interest rates.

Those hoping to get on the property ladder, who require an income boost to keep up with mortgage repayments, should seriously consider renting out a spare room.

Rental income and tax The rental income earned from renting out a room is exempt from income tax, provided this income does not exceed 7,620.

Anything above that figure is taxable, and where more than one individual is entitled to benefit from the rent, the exempted limit is divided between the individuals concerned. (The tenants themselves are also entitled to claim tax relief on the rent paid to the home-owner).

Most arrangements appear to function on a basis of trust between owner and tenant as the scheme doesn't fall under the normal landlord registration agreement as set up in the PRTB (Private Residential Tenancies Board).

Lending institutions tend to look favourably on mortgage applicants intending to buy a home with a room to spare, and generally factor this into the amount approved. The applicant in question more than likely is a single applicant, however, as Mark Dunne from Simply Mortgages, a broker company representing a number of lending institutions, explains.

"As a guide, most lenders will calculate that a single person in a multi-bedroom property would have the option of renting out a room to generate an income. They will therefore factor this option into their affordability calculations. "Most lenders allow for 400 a month rental income ( 4,800 a year), assuming one room could be let. EBS may allow the maximum 7,620, on a case by case basis, where there are more rooms available to let.

Permanent TSB, on the other hand, does not consider room rental at all. The average increase to borrowing potential that room rental generates is 30,000 on top of the potential generated by (taxable) basic income, overtime and commission."

Most lenders do not hold clients to an agreement that they actually do rent out a room, but simply increase the loan amount on the understanding that this would be an option.

When a couple are applying, the story is different, and banks or other lending institutions won't consider the room rental option.

Successful renting Trainee teacher Emer Murphy found the scheme a boon when she bought her Dublin 15 three-bed house three years ago, with her lending institution factoring in an extra 300 a month income for room rental.

"I didn't even rent out a room for the first year as the house wasn't ready, but they allowed for that amount in my application. I subsequently put an ad up on the Daft. ie website for a tenant, and the first person rented the room for three months."

So how did she cope with issues of privacy, and, crucially, did it make a noticeable difference to her income?

"The first tenant stayed three months, but was only using the room part of the week, spending the rest of the time with her boyfriend.

So I didn't see her that much.

The next person, also found on Daft. ie, was a Polish guy and ticked all of the right boxes in terms of being the perfect tenant. He stayed for eight months.

"Financially, the rent was covering about one-third of the mortgage, and I found that bills for heating or electricity didn't really increase by much. The one big drawback is that you don't have a guest bedroom if friends want to stay over . . . but then you have to ask yourself how often will you need a spare bed and weigh that up against the amount you can earn from the room."

Foreign language students The business of finding suitable tenants may deter some owners. An alternative option is to go though a third party, and one of the most popular ways is to take in a foreign language student.

English language schools regularly seek accommodation for students throughout the year, usually on a shortterm basis of around two to three weeks for each student.

This is based on offering not only a room, of course, but also breakfast and evening meal. Colleges pay, roughly, up to 150 a week.

Vera Daly has been hosting students for over 14 years through colleges, including the Alpha College of English at Dublin's North Great Georges Street, and has seen social and financial benefits from the arrangement.

"Of course I need the income, and I wouldn't have been able to hold on to my house without doing this. But aside from that, the students are my life. They usually stay on a month-to-month basis, and are mostly European.

I've made many friends through the scheme.

"It's ideal if you have a biggish house, with room to spare. I live in Glasnevin, but I know households on the outskirts of the city who rent out the spare room and it works out well for them too. I often get asked by younger homeowners about lack of privacy, but I feel that with a flow of new students coming in that this is a way of keeping my house alive."

Emer Murphy agrees that the benefits outweigh any concerns about invasion of privacy.

"One of the things I like about having a tenant is the security of knowing someone is looking after the place when I'm not around, particularly when I'm on holiday.

My advice to anyone who has serious reservations, however, is not to do it. If you are going to be anxious about space, or very precious about your furniture, then you are not going to be happy taking on a paying guest."

For more information on the Rent a Room scheme, visit Oasis, the citizens information website (see below), or contact one of the 86 Citizens Information Centres nationwide; Threshold, the charitable organisation, also gives free advice on this and other housing issues (016786096); Simply Mortgages (01-664 5100).

RENTING A ROOM . . . THE RULES >> Lenders will allow an approximate "gure of 400 a month in rental income when assessing suitable applicants.

>> A number of lending institutions will automatically factor potential rental into a single applicant's approval when it's a multi-room property, even though you may not actually rent out the room in question.

>> Income received from renting a room, or rooms, in your principal private residence must be included on your annual income tax return.

>> Mortgage interest relief is not affected by income received from renting a room.

>> Before you rent out a room, you and the tenant should agree some ground rules in advance, preferably in writing, such as period of tenancy, amount of rent, etc.

>> If you rent a room in your home, you are not covered by landlord/tenant legislation, which means you are not obliged to register as a landlord or provide the tenant with a rent book. A private tenant living in your home does so under a licensee agreement, not a tenancy agreement, and as such is entitled only to 'reasonable notice' should you choose to terminate the agreement.