BikingScot, you do not say if you are renting out "all" of your property or just a couple of rooms - it is essential to understand this as there are different tax treatments i.e "rent a room". Take a look at this link: http://www.direct.gov.uk/en/MoneyTax...ome/DG_4017814
There are lots of additional links in this topic for you to investigate to see exactly what allowance you can claim to offset against the income. Remember also as a landlord there are a host of other legal and safety issue you need to concern yourself with - not least attention to any gas and electrical appliances and their regular maintenance and inspection!!
In any event you need to treat your rental activities as a separate business from Mrs Physo's as they are unrelated.
Note: The interest
on your mortgage or other property loan is allowable as an expense, not the repayment of the principal loan amount. So if you are repaying £650 pm, perhaps only £50 of this is interest repayments, so that's what you can claim as an expense.