New revelation of extra pressure on borrowers
Thought the going was tough already? Mortgage advisers face a new headwind when dealing with borrowers budgets after ministers acknowledged that council tax receipts in England are expected to climb by £9.4bn by April 2029 - a rise of about 26 per cent over the Parliament, largely driven by councils using the maximum permissible annual increase.
The projection, disclosed via a Freedom of Information request, implies that roughly two-thirds of the uplift in councils’ “spending power” this Parliament would be funded by local taxpayers rather than central grants. While the Government has said overall spending power will rise in real terms, the mechanism matters for mortgage underwriting: council tax is treated as a committed expense in most affordability models and will therefore eat into borrowers’ surplus income.
Under current rules, councils with social-care duties can raise bills by up to 4.99 per cent a year without a referendum; others can raise by up to 2.99 per cent. Earlier this year ministers permitted six authorities to go beyond those limits - Bradford (10 per cent), Newham (9 per cent), Windsor and Maidenhead (9 per cent), and Birmingham, Somerset and Trafford (all 7.5 per cent). The then Deputy Prime Minister, Angela Rayner (who famously underpaid tax herself), said the chosen councils had “amongst the lowest levels of council tax”, adding: “We recognise the importance of limited increases in helping to prevent these councils falling further into financial distress – but we have been clear this must be balanced with the interests of taxpayers.”
The politics are febrile. Sir James Cleverly, the shadow housing secretary, said: “Labour are budgeting for a massive £9bn hike in council taxes, misleading Parliament on the actual grant funding that councils are getting. I fear that this is the tip of the iceberg of the soaring tax bills that family homes now face, with Starmer’s advisers drawing up plans for further rises. The Conservatives are the only party campaigning against these new taxes on your home.” Officials counter that the figures reflect a planning assumption rather than a fait accompli; the housing department said its release was “an estimate of the resources available to local authorities, and not a prediction of their actual council tax revenues since councils are free to set their own levels of council tax depending on the needs of their local area and the impact on ratepayers”.
For the mortgage market, the practical question is what repeated uplifts do to capacity. If councils opt for the maximum each year, the compounding effect would push bills up by more than a fifth over four years. With inflation moderating, that means council tax would rise faster than many other household costs in areas that adopt the ceiling, narrowing headroom in lenders’ affordability tests.
Local government finances remain under strain. As the Local Government Association has warned, “This financial year therefore remains extremely challenging for councils of all types who now face having to increase council tax bills to bring in desperately needed funding next year yet could still be forced to make further cuts to services.” For mortgage professionals, that translates into a simple operational message: assume council tax is heading higher through the Parliament and price affordability - and advice - accordingly.
