Live with the landlord at mates' rates

High prices, student debt and the desire to buy solo make it almost impossible for twentysomethings to break into London's property market. A small "black market" economy is on the increase, however, where people who have been able to buy are renting rooms to friends below market prices, namely, "mates' rates". In these households, the usual "them and us" relationship between tenants and landlords has been redefined.

Kate Barker rents a room in her friend Jane Wallace's Brixton house, and pays well below the market rate. Jane bought her three-bedroom house in 1998, with parental help. Kate works on short-term contracts as a researcher for a television production company and, during the inevitable gaps in work, Jane is flexible about rent pay-day. During a particularly difficult patch, Kate did not pay her rent for three months. "The fact that I didn't have to worry so much about rent meant I felt much more secure, and I paid the money I owed as soon as I could," she says.

This arrangement enables Kate to live in a property, and area, above her income bracket. "I'd never normally be able to rent such a big room in Zone 2, so near the Tube." She is also able to decorate her room, which means a welcome break from off-white wood chip. "I'm not only allowed to do up my room pretty much as I want, I feel more inclined to put the effort in as it's my friend's house. I feel a personal investment in the place."

Most mates' rates households have no contract, so the arrangement depends on trust. Jane doesn't see this as a problem. The fact that landlords and tenants are part of the same wider social network, plus the emotional attachment, means that both parties have more to lose if things go wrong. "There is less chance of being taken for a ride," admits Jane. "I never worry about people paying their rent on time. I mean, we have a history. I know their family and friends."

Claire Wolf bought a three-bedroom house in Herne Hill in 1996, also with parental help. "Some people think I'm charging below the market rate out of 'rich kid guilt', but I'm not." Claire believes that she benefits from the mates' rates scenario as much as her lucky tenants. Letting to friends means that there are no agency fees and landlords know exactly what they are letting themselves in for. "I feel secure about leaving the house for the weekend because I know my friends' lifestyles and I trust them," she says.

There are other benefits: Claire has a dog and didn't mind when her friend and tenant Mark Pryce brought his cat when he moved in. "It's easier to ask a friend to feed the cat and, in Claire's case, walk the dog, than it is to ask a relative stranger," he says. "Charging mates' rates means I don't feel so bad about asking friends to accommodate my Saint Bernard!" Claire admits.

Nigel Chester bought a two bedroom flat in Walthamstow in 1999 with hard-earned savings from his marketing job. He was one of the last generations to get a student grant and his lack of debt enabled him to save immediately he started work. He took into consideration the mates' rates option when choosing a property. "The best thing about renting is that it enabled me to get on to the property ladder. I could have just about scrambled together funds for a one-bed, but two-beds aren't much more and having a tenant is a massive boost to finances. I didn't want to move in to my place with someone I didn't know."

Nigel is renovating his property, and because of this knew that he couldn't charge top rent prices. "I expect my friend to be understanding about how hard it is when you first move into a place and how long it takes to get renovation work sorted out. In return for her patience, I charge a lot less than the going rate." This scenario can be hard on tenants; Zoë Hughes, Nigel's friend-tenant, was frustrated with the slow progress. "The bathroom took ages to sort out. I couldn't complain because I'm getting a really good deal, but it did get me down sometimes, especially as the renovation work went on through the winter and I had to have baths amongst the rubble."

For tenants, mates' rates means more income to pay off debts and to save, so that they can eventually enter the property market themselves. But financial dynamics can cause problems. Nigel admits: "I'm not sure sometimes where my responsibilities end. Am I supposed to buy things like an ironing board and second phone?"

Friends who wish to become one another's landlord or tenant should be clear about their reasons for doing so. Importantly, landlords shouldn't think they are simply doing their mates a favour, and tenants shouldn't be made to feel eternally grateful.

Mates' Rates – The Pros and Cons:

Tenants:

Pros

* Cheap rent means more money to save and pay off debts.

* Flexible payments; no deposit.

* You may decorate your room.

Cons

* You might feel like a guest.

* Have to put up with renovation.

* Repairs can be slow.

Landlords:

Pros

* Income while you renovate.

* No agency fees.

* The tenant is a known quantity.

Cons

* No deposit for repair work.

* Status of being a landlord can affect friendships.

* You may feel obliged to be flexible about rent payments.