Clapham Council Tax Payers Hit by 10.9% above Inflation Rise

Buying and selling a home in Clapham isn’t the easiest or cheapest thing you will ever do. Estate Agent fees, Solicitors fees, Survey fees, Mortgage fees, Removal Van … the costs just mount up throughout every step of the move. Last week, a Clapham landlord asked me whether the Council Tax Band made a difference to a property’s appeal, be it tenanted or to owner occupiers, when it comes to being sold on the open market and whether extensions or improvements made a difference to the tax banding?

Well, like I said, the first point you should always be aware of is what Council Tax Band your new house or apartment will fall under. Being aware of this before you buy/move will help when planning month by month for life in your home (or investment). But what exactly are Council Tax Bands, and how do they affect landlords/tenants/homebuyers?

How much Council Tax you pay depends on two variables. The first is which Council Tax Band your property is in. A property is placed into a specific band depending upon what the value of the property was in April 1991 – the date when the tax band system was applied. In a nutshell, what your property is worth today has no relevance whatsoever to your banding.

Council Tax Bands have a letter of the alphabet and range from bands A-H.

The Council Tax Band values are:
Band A – up to £40,000
Band B – £40,001 to £52,000
Band C – £52,001 to £68,000
Band D – £68,001 to £88,000
Band E – £88,001 to £120,000
Band F – £120,001 to £160,000
Band G – £160,001 to £320,000
Band H – more than £320,000

So, for example, if a property sold for £110,000 in April 1991 but is now worth £350,000 it will remain in Band E – NOT Band H), as this was the value when the bands were set in 1991. For new homes, the same thing applies: they are valued based on the 1991 market value. This safeguards that all homes and all buyers are treated equally and consistently. The second factor that determines how much Council Tax you pay is what each individual local authority decides each band will pay in Council Tax. (So for example, a householder/tenant in Leeds in a Band E property will pay a different amount in Council Tax each year to someone in Swindon or North London in Band E).

Interestingly, the average current level of Council tax paid by Clapham people stands at £997 per annum, up from £473 in 1993 (although if it had risen by inflation in those 25 years .. today that should only be £899) … meaning Council Tax has outstripped inflation by 10.9%. So unless the local authority changes its majority political party, the only way you can change the amount you pay in Council Tax is your banding i.e. you physically move to a higher or lower band.

Contrary to what most people think, extensions and improvements do not change the Council Tax Band and existing householders/tenants only have to pay the same Council Tax as they would have without any extensions and improvements. However, the Valuation Office (The Government’s Property Valuers) do reserve the right to re-value the extended property if the property gets sold. If you are a potential buyer, you should be aware of this review as it could change the amount of Council Tax you pay after the purchase. If a higher band is necessary, the new band will be based on what the extended property would have been expected to sell for in 1991. However, this does not necessarily mean that the banding will jump one band, as this is contingent on the extent of the changes and whether the property falls towards the top or bottom of its existing band. More often than not – it isn’t an issue and the banding stays the same.

In terms of which band the property is in, this can be challenged. In my experience in the Clapham property market the only issue is one where there is an anomaly with the banding, when one property is in a different band to all the others in the street. This is much rarer than it used to be, as most such anomalies have been found and rectified. Anyone can check the banding of any property by going to Google and typing in “Check My Council Tax Banding”. I do need to mention a thoughtful warning though. Challenging your Council Tax Band is not something to do on a whim for one simple fact - you cannot request your band to be lowered, only 'reassessed', which means your band could be moved up as well as down. I have even heard of neighbouring properties band’s being increased by someone appealing, although this is the exception. If you have any questions don’t hesitate to drop me a line.

I hope you enjoyed reading. If you are keen to take things further, be it to start from scratch, or do something a bit more interesting with your current portfolio... Start the conversation on email. I'd love to meet you in person of course at this month's Clapham Property Meet, so do come along. Click here for tickets and more info.

Is individual room council tax banding killing off HMOs in Clapham?

I've been getting a lot of feedback through the investor grapevine that HMOs (House in Multiple Occupation. Generally let room-by-room, nobody knows each other, each bedroom is effectively a household) are getting more and more difficult to run. You will have heard about new regulations, I'm sure, for "vanilla" buy to let properties over the years. You have to carry out Right to Rent checks, you have to deliver the "How to Rent" booklet and much more of course. HMO managers have even more red tape to contend with. I won't bore you with all that now of course.

The real attack here via the council tax. Some councils in the country have taken to banding HMOs by the room, not by the whole property.

What does this mean?

Well in layman terms you as the landlord or HMO manager will be paying the bills (including of course, council tax), and this bill will go up substantially. Naturally a room is of less value than a whole house, but an HMO of say 6 rooms charged by the room will end up costing more than 1 house. A moneyspinner for councils then, isn't it?

I don't care, I don't let out an HMO

This may be. For the moment. You will find that Southwark for instance is clamping down on properties let to multiple tenants and multiple tenancies. If you are, therefore, letting by the room you run the risk of, in the future, being caught in "additional licensing."

But I'm in Clapham/Lambeth

You may be. Lambeth does not have as strict HMO licensing criteria as Southwark, this is true. But it may only be a matter of time before they catch on to this money spinner.

What do I do?

In my experience zones 2 and 3 are extremely high demand areas for letting. ESPECIALLY the bigger properties. In my 14 years of property in South London I have yet to experience a low demand for 3, 4, 5, 6 bedroom properties. They have always been scarce on my agency's books and always fly out the door. So why not let as one unit? Although not fool proof this will certainly help the council be convinced of your argument NOT to band it by room, but by property address. After all you are arguing it's one household, despite the group being unrelated. They are all friends, they cook together, and so forth. Criteria change all the time of course so this may not be fool proof.

What are the other benefits of letting as a whole?

Well I'm a big fan of this, so here's what it means for me:

1. Easier management. Deal with 1 tenant for instance, easier on the communication front.

2. Less repairs, you generally get less wear and tear

3. All of the tenants move in at the same time. If one does want to move out it will be his responsibility to find a replacement. They all want to terminate early? They are to pay for your agent to find a replacement tenant AND pay rent up until a new tenant takes possession.

4. Easier to get finance if you let on 1 AST

5. Generally eliminates the need of HMO Licensing (take advice on this of course, this will be council dependant) If you'd like me to put you in touch with an expert who can advise you on your property's HMO licensing requirements then let me know and I will connect you.

So to conclude - letting is becoming harder, so you as an investor have to look for ways to invest more profitably. This will mean making your life easier and it yielding you better returns, being higher income or lower costs. I am certain that letting a large property as a single unit will be easier and more profitable than letting it room by room, certainly once you factor in your time involved letting rooms and dealing with 6 tenants instead of 1 all year.

If you are looking to pick my brains on your property strategy do get in touch. I can help you define your strategy and help you build a profitable property portfolio. Having been active in buy to let in South London for nearly 15 years you can certainly make good returns. You don't always need to have millions in the bank to invest in London. Do you want good returns? Do you want to improve your current returns? Start the conversation: jeroen@claphampropertyblog.com