"Councils going bankrupt will mean mortgage holders having higher Council Tax bills when their monthly budgets are already strained to the max"
With Birmingham City Council bankrupt and more local authorities potentially to follow, brokers have warned that the inevitable increases in council tax bills will have a detrimental effect on mortgage affordability.
Speaking to Newspage, Gary Bush, financial adviser at MortgageShop.com, said: “Councils going bankrupt will mean mortgage holders having higher Council Tax bills when their monthly budgets are already strained to the max with ridiculously high utility bill costs and higher mortgage rates. Mortgage affordability has only just started to improve slightly but higher council tax could hit it for six.”
Justin Moy, founder at EHF Mortgages, agreed, and added that local house prices could also be hit: “Inevitably, as a local council goes into bankruptcy and some form of recovery process, local residents will see significant increases in their council tax costs, and other core services will need to be paid for privately. These additional costs will need to be factored into the overall affordabilty assessment for any new home purchase or remortgage, and that will only go to reduce their borrowing power overall, enough for buyers to downgrade their budgets if they want to get on the housing ladder. It will be another influence in the reduction of local property prices, too. There is a significant knock-on cost to the actions of these councils, and others who may be sailing near the wind financially.”
Amit Patel, adviser at Trinity Finance, said central Government must act as a matter of priority: "Austerity cuts since the Government was elected over a decade ago and gross misuse of public funds by some local authorities will now have a huge impact on borrowers as councils will inevitably increase taxes to plug the gap in their dire finances. Central Government must do its job and fund more money into local authorities before it's too late, forcing even more councils into issuing a section 114. Prevention is better than cure."
Graham Cox, founder of Self Employed Mortgage Hub, concluded: “Increased council tax bills will certainly feed into lenders' affordability checks, reducing how much people can borrow. It feels like all the chickens are coming home to roost for this Government and the housing market. Interest rates need to be cut now, otherwise the economy and property market will nosedive in 2024.”
