Bradford & Bingley has launched a new mortgage that is directly targeting borrowers who fully intend to make the most of government tax allowances on the rental income paid by a lodger living with them.

The new mortgage, allows borrowers to add on their likely income from renting out the room when assessing how big a loan they are able to get from the lender. Bradford & Bingley will lend up to 3.25 times the combined total of a borrower's salary and the rental income.

Under the rent-a-room scheme, the Government allows homeowners to earn a tax-free income of up to £4,250 each year (including contributions to any bills) through having a live-in tenant, but most lenders do not normally consider this as regular income to be taken into account when deciding how much borrowing a customer can afford.

Bradford & Bingley says the loan would be particularly helpful for first-time buyers who may only be able to afford a property if they rented out the spare room, or homeowners who already have a tenant and are remortgaging.

Interest rates on the Rent-a-Room mortgage are 4.64% for a two year fixed rate, with a two-year discount tracker starting at 3.99%. The mortgage is flexible, so that borrowers can overpay when they have a tenant, and reduce payments when the room is not let out.

David Bitner, technical manager at The MarketPlace, said: "Many people are concerned about over extending themselves when it comes to mortgage borrowing. This solution provides a structured means of borrowing while at the same time allowing many more people to become homeowners."