Separate council tax bands for HMO units will harm tenants, property professionals warn

This was the industry response to a government consultation which sought views on how HMOs are valued for council tax with a view to see such properties banded as one dwelling for council tax, except for in exceptional circumstances. 

The Valuation Office Agency (VOA) is currently responsible for banding homes for the purpose of council tax and making sure each property is properly assessed. Case law and legislation can be applied by the VOA to determine if a unit in an HMO should have its own council tax band, which ultimately passes the responsibility of paying the tax from the landlord to the tenant. 

Otherwise, landlords are responsible for council tax payments.

The government said the quality of HMOs had improved over time and there was a risk that legislation had not kept up with how they should be treated for council tax. 

It said the current approach could deter landlords from making improvements to HMOs to stop tenants from becoming liable to pay council tax and impacting their ability to pay rent. 

It added: “The government is keen to explore the extent to which the council tax valuation of HMOs is an issue and, if so, the appropriate approach to addressing this, with the intention that HMOs are banded as one property and have one council tax band, other than in exceptional circumstances.” 

The government wants to assess if the current framework is appropriate and whether a new approach is needed. 

Making money off society’s ‘poorest’ 

Kundan Bhaduri, property developer and portfolio landlord at The Kushman Group, said “cash-starved councils” were trying to make money “off the back of the poorest in society”. 

He added: “HMOs across the country provide essential housing for those on the lowest rung of the rental ladder, so by re-banding individual rooms in HMOs, the VOA, encouraged by local councils, is driving poorer tenants to destitution, as tenants become responsible for paying council tax on their room when this happens.” 

Re-banding HMOs creates extra regulatory and cost burdens for landlords, which end up being passed on to tenants, Rob Gill, managing director at Altura Mortgage Finance said. 

Gill said: “The plans need rethinking and a holistic approach applied rather than simply adding more cost and regulation in this piecemeal way.” 

Justin Moy, managing director at EHF Mortgages, said this was an example of local authorities seeing landlords as a “cash machine to support shortfalls elsewhere in their budgets”. 

Moy added: “With such a heavy reliance on private landlords to provide adequate housing for people on benefits, as well as private tenants, why drive these landlords out of the market and make that environment unattractive for investment? For HMO investment, the mortgage deals in this market are not a million miles away from the early 2022 costs, but increasing other taxes and associated costs just makes the effort unrewarded. The government need to be strong with this and help landlords plug the housing gap, not widen it.” 

‘Poorly thought-out decisions’ 

Rob Peters, principal at Simple Fast Mortgage, said: “This is yet another example of local government making snap decisions to increase revenue without considering the wider ramifications. Currently, HMO landlords are responsible for the council tax, which, together with utilities, is usually covered by the rent the tenant pays. The change would see the liability for council tax passed from landlord to tenant, effectively increasing the cost of living for those who often cannot afford to own or run a property of their own.  

“Poorly thought-out decisions like this cause great harm to tenants, landlords and the housing sector as a whole. With many already priced out of home ownership and the severe drought of rental property this country has, co-living HMOs are arguably the future. Local government should be looking at ways to stimulate and support this much-needed sector rather than loot it.” 

Negative impact on tenant appetite 

James Vince, managing director at Castle View Finance, said it was not a new challenge for landlords to have HMOs treated differently between each local authority. 

He said the costs were often passed on to tenants in the form of rent increases, describing this as a “bad time” due to rising interest rates. 

Vince added: “Landlords are already being tempted away with more lucrative property strategies, such as service accommodation, putting more stress and strain on the entity that needs single-unit availability the most: the local authority.” 

Austyn Johnson, founder at Mortgages for Actors, said this penalised good HMO landlords for the actions of bad ones. 

He said the proposed plan would either make it hard for landlords to find tenants to fill their rooms or mean rents go up to cover costs. 

“Rents going up is another thing that the government doesn’t want to address at the moment and it could end up with some emergency measures being put in place,” Johnson added.