How to halve your council tax!

Mortgage lenders are starting to sweeten their home loans for borrowers. But would this council tax offer tempt you?

This article was first sent to readers as a '360 degrees' email.

Finally, we're starting to hear some positive news regarding the property market.

The Royal Institute of Chartered Surveyors' (RICS) March housing survey revealed that potential buyer interest is increasing and is beginning to translate into sales.

Property website Rightmove's House Price Index report has shown that asking prices have risen for the third month in a row in April, with new sellers raising average asking prices by 1.8% (£3,996) - the biggest increase in 14 months. 

And even lenders seem to be getting in on the act now, with the interesting news that the Halifax is offering to pay up to £1,000 towards your council tax bill, if you take up one of its mortgages.

Good times ahead?

It certainly seems a long time since lenders have tried to sweeten their products to entice us in. With the lessons of the credit crunch ringing in their ears, providers have ditched the highly criticised self certification and 100% mortgages, vetted potential borrowers to death and generally made us feel that we're lucky to get a home loan from them at all. Are things changing?

Halifax deal

So what is Halifax offering? Essentially, if you take out one of the mortgage products in the offer as a first time buyer (FTB) or by remortgaging, not only is it offering free purchasing conveyancing if you hold a current account, but if you do so before 23 May it will also pay for half your first year's council tax bill (up to a maximum of £1,000).

Sounds good doesn't it - after all, with all the costs associated with moving any help with the bills will be very welcome.

But that's only the case if the deal is a good one.

First time buyers

First time buyers with a 10% deposit (90% LTV) can take up Halifax's 5-year deal at 5.69%, which is fixed until 31.7.2014 (with a hefty 2.5% fee).

Both first time buyers and those remortgaging who have a deposit of 25% or more could take up its 4.15% deal, 3-year fixed until 31.7.2012 (£995 fee).

And these deals aren't too bad. Although a first time buyer may not wish to take up a 5-year fixed rate deal at 5.69%, this is quite a competitive rate for anyone with an LTV of 90%. What's more, borrowers with a Halifax current account (and paying in at least £1K per month) will be entitled to free purchase conveyancing, too.

However, it's worth checking out HSBC as its current headline grabbing 2-year fixed rate deal is at just 4.99% (90% LTV). Although it's worth noting that this is only available to HSBC current account holders and does come with a jaw-dropping £1,499 fee.

Better deals for those remortgaging

Anyone remortgaging, on the other hand, may wish to shop around. For the same LTV (75%) as the Halifax deal, NatWest has a 2-year fixed rate product at 3.49% (£799 fee). First Direct has a variable rate deal at just 2.89% which you may find very appealing (£799 fee).

And if you have even more equity you could do worse than HSBC's 2-year variable rate deal at just 2.49% (60% LTV).

"All that glisters is not gold..."

However, if you've got an incredulous look on your face at the thought of going elsewhere and missing out on a deal that would mean half your council tax bill would be paid, remember to do your sums first.

For a start, most of us would be unlikely to receive anywhere near the £1,000 council tax payment. For an average Band D property, the council tax saving would be worth around £580.

Looking at a very rough example, if you were borrowing £135,000 over 25 years with the Halifax deal (4.15%), over the first year you'd have paid back £10,260. Subtract the council tax payment (let's assume £580) and you'd have shelled out £9,680 over the year.

But if you remortgaged the same property using the First Direct deal at 2.89% you'd pay out £7,644 over the first year - saving a whopping £2,000 over the year on the Halifax deal. And that's not even taking into account the second and third year savings, nor the fact that the Halifax mortgage arrangement fee is higher.

Council receives payment directly

And it is worth noting that the council tax payment is not paid to the borrower - successful applicants must submit their bill to Halifax who will pay half directly to their local authority. So anyone in receipt of a council tax discount/benefit and hoping to get half of their full bill back will be disappointed.

All in all, I would say that while the Halifax products aren't the best on the market, with inducements like this they will certainly get people interested. In particular, first time buyers with small deposits may be enticed with the thought of half price council tax for a year.

But as always, don't get seduced by the offers -  take your time and do your sums (you can use our calculators to help) before signing up for any home loan as even a small difference in mortgage rate can save a lot of money in the long run.

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More: How to get the best mortgage deal | How to tackle low equity in your home