Property stakeholders criticise local authorities' re-banding of HMOs

"Cash-starved councils are trying to make money off the back of the poorest in society"

Property stakeholders criticise local authorities' re-banding of HMOs

Landlords and brokers have criticised the way, they say, a growing number of local authorities are treating houses in multiple occupation (HMO) properties for council tax valuation.

“HMOs are being treated differently from one local authority to the next, and now that’s happening in taxation and banding,” said James Vince, managing director at specialist mortgage brokerage Castle View Finance. “This issue is not a new challenge for landlords, it’s a battle that has been going on for years in some areas, with lengthy appeals and legal challenges.”

As with all domestic property, HMOs are given a council tax band by the Valuation Office Agency. This is used to inform the calculation of the council tax due. Historically, HMOs have generally been valued as having one council tax band and in those situations, the owner of the HMO is liable for the council tax due on the property.

However, HMO properties are now being assessed by some local authorities in such a way as to attract a council tax band for each individual unit.

“Cash-starved councils are trying to make money off the back of the poorest in society,” commented Kundan Bhaduri, property developer and portfolio landlord at The Kushman Group. “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 Valuation Office Agency, encouraged by local councils, is driving poorer tenants to destitution, as tenants become responsible for paying council tax on their room when this happens.”

Bhaduri added that with 3 million people currently living in HMOs in England, this could well turn out to be “the Sunak government’s Poll Tax moment if not tackled immediately.”

He continued: “It’s no wonder several high-profile MPs are now taking up the gauntlet on this issue, including the Leader of the House of Commons, Penny Mordaunt, and the Conservative MP for Gosport, Caroline Dinenage. It’s nothing short of a disgrace.”

Rob Gill, managing director at Altura Mortgage Finance, agreed that the re-banding of HMOs is creating significant extra regulatory and cost burdens for landlords, some of which is inevitably passed onto tenants.

“This move to raise additional council tax will be yet another blow to tenants,” Gill said. “The plans need rethinking and a holistic approach applied rather than simply adding more cost and regulation in this piecemeal way.”

Austyn Johnson, founder at advice service Mortgages For Actors, suggested that this new council tax plan would do one of two things – it would either cause landlords to have trouble finding tenants to fill the rooms, or it would mean that, once again, rents went up, to cover the cost.

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 said.

For Justin Moy, managing director at independent broker, EHF Mortgages, this was “another example of Local Authorities seeing landlords as some kind of cash machine to support shortfalls elsewhere in their budgets.”

He asked: “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.”

The government has conducted an open consultation over the matter, saying that it wanted to provide “greater certainty and consistency” in the way that accommodation in the HMO sector was banded for council tax, and to ensure that HMOs were banded as one property and have one council tax band, other than in exceptional circumstances.

“With changes in the quality of offer in some HMOs, there is a risk that legislation has not kept up with the improvements in the quality of HMO accommodation and how such properties should be treated for council tax,” it says on the website of the Department for Levelling Up, Housing & Communities.

This consultation, which started last month, will close today, March 31. 

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