Council tax hikes to hit mortgage holders but savers may ‘save thousands’ by remortgaging
Rishi Sunak grilled on support for 'mortgage prisoners'
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Mortgage holders are set to struggle over the coming months as councils across the UK are set to raise council tax costs. Recent research on this shows the increases could add over £150 to monthly bills.
In late February, research from the Mirror revealed two-thirds of England’s major councils are on track to impose a council tax hike of around five percent come April.
This will tip many bills over £2,000 for the first time.
Additionally, research from StripeHomes, the Newcastle-based property developer, found that the vast majority of homeowners believe Government plans to increase council tax are unjustified, with 23 percent likely to struggle financially.
In analysing data from the Chartered Institute of Public Finance & Accountancy, StripeHomes found the average homeowner in England is due to see an annual increase in council tax of £78, pushing the cost to £1,895 per year or £158 a month.
StripeHomes detailed this increase is believed to be unjustified by 72 percent of homeowners and additional research from the company showed that when considering the average monthly mortgage payment, the cost of food, home maintenance and bills, internet and other outgoings such as household insurance, an increase in council tax will push the average household spend to £1,734 per month.
They detailed the latest hikes will mean council tax is set to account for 9.1 percent of monthly household outgoings but “when taking the much larger mortgage payments out of the equation”, council tax accounts for 23 percent of comparative outgoings.
James Forrester, the Managing Director of StripeHomes, commented on this: “For many, an increase in council tax will come as an annoying inconvenience but one that will be absorbed.
“However, the assumption that this applies nationwide is simply wrong and for families across the nation, surviving financially is an obstacle they tackle on a month to month basis.
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“This obstacle has been made all the larger due to the pandemic and the ability to overcome it is based on very fine margins indeed. Margins that the Government has chosen to chip away at once again with little thought for the average family.
“Not only is it ludicrous that a London millionaire can pay a comparable level of tax to a family struggling in the North East, but the figures show that those in Northern regions and even the Midlands are due to be hit hardest, as they’re the ones who will see the largest increase in council tax as a percentage of their outgoings.”
These difficulties were also reflected in recent research from Legal & General, which showed over one in three of those negatively impacted financially by the pandemic are planning to revert to their lender’s SVR (Standard Variable Rate) rather than seek a new mortgage deal.
In light of this, moneyfacts.co.uk have issued a warning on how these decisions could end up costing homeowners even more down the line.
Eleanor Williams, a Finance Expert at moneyfacts.co.uk, broke down how borrowers can “save thousands” by remortgaging: “Households may have found themselves impacted by the coronavirus pandemic in different ways; some have been fortunate to maintain a stable income and have been able to save money, but many have had their household income adversely impacted.
“One way to save some cash could be to remortgage, especially if a borrower is on an SVR.
“At 2.57 percent, the overall average two-year fixed rate for all LTVs is 0.08 percent higher than the equivalent average rate of 2.49 percent for those who secured a two-year fixed rate in March 2019. “However, rolling over onto an SVR could cost borrowers thousands of pounds more in monthly repayments.
“In fact, the difference in rate is near two percent and depending on how much equity someone has in their home, they may be able to get a two-year fixed rate deal lower than two percent.
“Those who fix now could also protect themselves from future interest rate rises and ensure a stable monthly mortgage repayment they can budget to.
“The Equity Release Council has stated that homeowners have overpaid more than £5billion of mortgage debt in the final quarter of last year, so those who secure a remortgage could then consider using some of the cash they have saved from their monthly SVR payments to reduce their outstanding debt and thus could save even more in interest overall.”
Eleanor concluded: “Undoubtedly, although there may be those currently struggling financially, it would be unwise for borrowers to assume that they would not be eligible for a new mortgage, even if their existing lender is unable to offer a new deal. Seeking independent advice from a broker who is up to date on the ever-changing mortgage sector could unveil options which may save them significant sums. There are ‘furlough friendly’ lenders who may be able to assist, lenders who may have different lending criteria to their current provider, and some brokers may have access to deals which borrowers cannot obtain directly.
“Those who feel put off remortaging due to concerns around finding funds to meet associated costs should note that while the percentage of the market offering fee free deals has reduced by six percent year-on-year, there are many products available without a fee, and at 2.75 percent, the average rate for fee-free fixed rates is lower than the average for those which do charge a fee (2.92 percent). Equally, there are still many options which could help to reduce upfront costs, with the proportion of the market offering various incentive packages remaining fairly stable year-on-year. The right mortgage is about more than just the initial rate offered, and advice could be invaluable in assessing what may be the best route forwards for an individual’s circumstances.”
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