This blog answers the question “Does your council tax status affect mortgage application?”
It considers the factors mortgage lenders assess when approving an application and states the difference in nature between “council tax” and “mortgage”.
Does Your Council Tax Status Affect Mortgage Application?
No, your council tax status does not directly affect your chances when applying for a mortgage. The things looked into when you are given a mortgage are your credit status, work history, the condition of the home being acquired with it. The bank or lending authority basically wants to ensure that you will have the funds to pay back the mortgage within the given time period.
Credit records, assets and proof of income documents are closely scrutinized before approving the mortgage application but having a bad council tax payments record will not be reported to the loaning authority. Council tax records are confidential and not shared with credit agencies.
If you have been legally charged for not paying council tax, that debt could be paid off from the sale of your assets or other social security benefits but even this link to the finances of paying back your mortgage will not worry the mortgage provider. A person with a healthy credit record is highly unlikely to go under for not paying council tax and also not likely to fail to pay off his mortgage.
You might be able to get exemptions or reductions in council tax if you have little or no income or other debt but only financially sound mortgage loan applicants get their property on credit.
So council tax is applicable to everyone over the age of 18 who owns a property jointly or individually and is legalized in the 1992 Local Government Finance Act while the mortgage agreement is guaranteed by the bank which usually holds the person who takes out the mortgage accountable to pay it back. Mortgage loans also have interest applied to them while council tax payments don’t.
Is the municipality privileged compared to other creditors for the recovery of council taxes?
The privilege for the recovery of taxes is available to the council, by virtue of the law and by the nature of its claim (Council Tax is a priority debt). Through this legal guarantee, the municipality obtains priority over other creditors, even mortgage creditors. It may relate to the movable or immovable property of the debtor.
Legal mortgage of the Treasury – Registration procedures
How do you register your mortgage?
Accounting officers appointed by HM Treasury have the legal mortgage of HM Treasury to guarantee the recovery of their unpaid debts. Their guarantee, like that of all mortgagees, takes precedence on the day of registration, independently of the precedence conferred on them by the privilege they enjoy.
The registration of the legal mortgage of HM Treasury is carried out under the conditions set out by the accounting officers (appointed by it) as long as the debt is not affected by the statute of limitations. It can no longer be registered once the limitation period for the recovery action has expired
The registration of a legal mortgage is a preventive measure that may affect the debtor’s credit. Contrary to the privilege, no threshold of compulsory registration is fixed by the law. In practice, the legal mortgage is only registered if the value of the movable assets appears insufficient to guarantee the recovery of the debt.
Certain events make it impossible for the administration to effectively register the legal mortgage of the Treasury. This is the case in particular with collective proceedings and the seizure of property.
Which conditions apply to registering the mortgage of a taxpayer in debt?
The legal mortgage can be registered once the debtor has been notified of an enforcement order.
In general, the legal mortgage is registered in the case where the value of the movable assets subject to H M Treasury’s lien appears insufficient to guarantee the recovery of the taxes still due.
When the debtor owns several buildings, the choice of the building or buildings on which the mortgage is to be registered is made taking into account the amount of the debt to be secured, the respective value of the buildings and the mortgages already registered.
In order to avoid possible changes in the value of the debtor’s buildings, it is necessary that they have a value, in their unencumbered state, that is sufficiently high to cover the amount of the claim to be secured.
The registration of the legal mortgage of HM Treasury may be required with the agreement of the debtor.
This is the case in particular :
- when a taxpayer settles his debt by installments and his buildings constitute the Treasury’s main guarantee, while the accounting officer has granted payment deadlines;
In this case, the legal mortgage of the Treasury is registered for the period corresponding to the period that must elapse until the date of the last payment, increased by one year,
- when a taxpayer has filed a contentious claim with a request for deferment of payment.
For the taxpayer, the registration of the legal mortgage of the Treasury, because of its low cost, is much more advantageous than the setting up of a conventional mortgage.
If the taxpayer agrees to the registration of the legal mortgage by the accountant of public finances, there is no need to send him the notice provided for his information.
Tax payments resulting from a rectification procedure
The legal mortgage of the Treasury may be registered as soon as taxes and penalties are levied, including tax reminders levied following a rectification procedure or taxes established through automatic taxation.
Before the tax is levied, the accounting officer responsible for collection may not register the legal mortgage with HM Treasury. He may, however, ask the judge to authorize him to take precautionary measures.
The procedure of the provisional judicial mortgage implemented even before the issuance of the tax assessment or collection notice allows the accounting officer to safeguard the rights of HM Treasury by taking guarantees from the beginning of the tax assessment and liquidation procedure.
The accountant has a period of three months from the order of the enforcement judge to register the provisional judicial mortgage
As soon as the tax in question is collected, the accountant must apply to the land registry for the final registration of the judicial mortgage, which will therefore take effect on the date of the provisional registration. The final registration must be carried out within two months, starting from the day when the title establishing the creditor’s rights has become final
With regard to taxes that do not belong to the category defined above, the legal mortgage of the Treasury can only be registered from the date on which the taxpayer incurred a surcharge or penalty for non-payment.
Can a new mortgage be registered in the case of opening of judicial proceedings?
No, new mortgages, pledges and liens may no longer be registered after the judgment opening the proceedings.
This is the case for legal proceedings for the settlement of liabilities, the seizure of real estate, the liquidation of an element of the debtor’s assets and the acceptance of an estate up to the amount of the net assets.
Opening of judicial proceedings (safeguard, reorganization or judicial liquidation)
Mortgages, pledges and liens may no longer be registered after the judgment opening the proceedings. The same applies to deeds and judicial decisions transferring or constituting rights unless these deeds have acquired a certain date or these decisions have become enforceable before the opening judgment.
Any contractual mortgage, any judicial mortgage, and the legal mortgage of spouses constituted on the debtor’s assets for debts previously contracted is to be declared null and void when they have occurred since the date of cessation of payments.
The benefit of the admission, as a mortgage, of the claims of public finance accountants is of course suspended from the validity of the mortgage registration, and if necessary, its renewal.
Mortgages can be subject to certain registration fees
Apart from the legal mortgage of the Treasury, which is a guarantee common to all taxes, the accounting officer (appointed by HM Treasury) has specific securities for certain registration duties.
These are :
- on the one hand, the legal mortgage on the deceased’s real estate to guarantee the fractional or deferred payment of death duties,
- on the other hand, the legal mortgage in respect of woods and forests, on the buildings of the forestry group or on the building that is the subject of the transfer, to guarantee the payment of any additional and supplementary duties that may be payable in the event of the withdrawal of the tax relief
The creditors and legatees of a deceased person have a special real estate lien (on the property left behind ) to guarantee the rights they hold
The privilege of the separation of assets therefore only applies to the deceased person’s real estate.
The public accountant may claim the benefit of this privilege to guarantee the transfer duties by death which constitute a debt of the successors and of the succession.
The legal mortgage and other payments on inherited property
Death duties are paid before the registration, land registration or merged formality is carried out.
By way of derogation from this principle, the payment of registration duties and land registration tax may be split up or deferred in accordance with the procedures
In addition to the general guarantees of a conventional nature (personal surety, conventional mortgage) usually accepted in the area of duty guarantees and which must be constituted within four months of the credit application, the guarantee provided may consist of the registration of the legal mortgage on the real estate
.The deferred payment applies to transfer duties after the death of the owner, in respect of transfers of the following kind:
- which involve the devolution of bare ownership of the property ;
- which give rise to preferential allocation
The Legal Mortgage on Inherited Property and taxes charged on this transfer
Consequently, the legal mortgage on the inheritance property guarantees the claims constituted by the taxes due as a result of the above-mentioned transactions
The guarantee covers not only the principal of the duties but also the interest required in return for the credit. The interest required in return for the credit is added to the installments and possibly to the deferred payment.
For credit applications made until 31 December 2014, the interest rate required in return for the credit is equal to the legal interest rate on the day of the credit application, i.e. the day of filing of the deed of gift or the declaration of inheritance.
This rate, of which only the first decimal place is retained, is set annually. The UK Money Markets Code, as it stood until 31 December 2014, stipulated that the legal interest rate, set by decree for the duration of the calendar year, was equal to the arithmetic average of the last twelve monthly averages of the actuarial yields on auctions of thirteen-week fixed-rate Treasury bills
For credit applications made on or after 1 January 2015, the interest rate required in return for the credit is equal to the average effective rate charged by credit institutions for fixed-rate loans to individuals during the fourth quarter of the year preceding that of the application for fractional or deferred payment, reduced by one third
Mortgage Guarantee on inherited property
In order to benefit from the fractional or deferred payment credit, the heir(s), debtors of the tax, are allowed to present to the accounting officer in charge of the collection of the duties an offer of guarantees on the real estate which is devolved to them.
The guarantees may take all the real or personal forms usually accepted in the field of guaranteeing duties.
The successors who choose to provide a mortgage guarantee may propose either to have the registration made on buildings they personally own or on buildings they have received as part of the deceased’s inheritance.
In the latter case, they are exempted from drawing up a deed of allocation of the mortgage.
It is up to the accounting officer to take the necessary steps to request the registration so that the four-month time limit is not enforceable against the beneficiaries of the credit.
Although it is a legal mortgage, the will of the heirs requesting the credit is taken into account:
- in the case of multiple properties, the co-heirs must designate which of these properties they intend to offer as security;
- In all cases, the guarantee by legal mortgage can only be validly constituted if all the successors expressly give their agreement, either in the credit application or separately.
The offer of guarantees, which the tax debtor undertakes to provide at his own expense, is contained in the request for credit formulated either at the foot of the deed or declaration submitted for formality or attached to these documents.
The offer must also be firm and precise and contain all the information and evidence likely to enable the accounting officer to take a final decision on whether or not to accept the guarantees offered.
The value of these guarantees determines the granting of payment deadlines. If the guarantee offered relates to real estate, certificates issued by the land registry office establishing the mortgage status of the property should be attached.
The assessment of the value of the buildings to which the guarantee relates shall be made by the accounting officer. This value must be at least equal to the amount of the sums for which payment is deferred.
In the event that the property of the estate is already subject to security, the mortgages registered before the death (of the owner) shall take precedence over the mortgage which HM Treasury is required to request as a guarantee for the payment of the fractional or deferred duties.
The net value of the security is obtained after deduction of the registered claims, their interest, the costs of collection as well as the elements which are likely to reduce the value of the properties offered.
The accounting officer (appointed by HM Treasury) responsible for the collection of the duties for which the payment credit is requested may at any time if he considers it necessary (for example, if the inherited property is already encumbered by mortgages), demand additional security.
This additional security may also consist of a mortgage on the buyer’s right when the heirs, having received only the bare ownership of a property, request the deferred payment of the duties due.
In this case, of course, the signature of the buyer is required on the mortgage deed
The additional guarantees must be provided by the beneficiary of the credit within one month of the request sent to him for this purpose by registered letter with acknowledgement of receipt.
What are the expenses incurred in the registration and cancellation of the legal mortgage on the inherited property?
The expenses incurred by the registration and cancellation of the legal mortgage on the estate’s immovable property are to be borne by the person liable for the duties.
Tax laws place the legal mortgage outside the scope of the land registration tax, the costs in question are made up of :
- the registration fees for the deeds recording the constitution or release of the guarantees;
- the property security contribution.
The use of the legal mortgage procedure of HM Treasury to guarantee the fractional or deferred payment of transfer duties has the advantage for the taxpayers of reducing the costs of setting up the mortgage guarantee because, as it is a legal mortgage :
- the land registration tax is not payable ;
- registration can be requested on simple slips drawn up by the department.
This blog post addressed the question “Does Your Council Tax Status Affect Mortgage Application?” Your mortgage application depends on having a good Credit Score, proof of income over the past 2 years, not having too many debts you are liable for. Council Tax non payment has nothing to do with getting a mortgage.
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Frequently Asked Questions (FAQs): Does Your Council Tax Status Affect Mortgage Application?
Can you get a mortgage with no credit history?
It is very difficult to get a mortgage without any credit history because when lenders have nothing to go on they cannot be sure whether you will be able to return the sum you borrow. Even if you are able to find a lender it might have a higher interest rate than the prevailing market. You can get 3 types of government backed home loans with no credit history which are FHA loans, USDA loans and VA loans.You will need to provide your utility bill payment history to show that you are able to pay them on time and also rent history if you live on a rented premises
What if your spouse has bad credit?
If your spouse has bad credit it does affect the chances of getting a mortgage application approved. If your spouse’s credit score is too low you may not qualify to be granted a mortgage at the lowest interest rates or worse still your mortgage loan could be refused. It is a good idea to improve your spouse’s credit score before applying for a mortgage. That said it is assumed that you would register for the mortgage jointly and your debt would also include your spouse’s debt
What are the main deadlines for a mortgage?
Mortgages are typically due to be paid on the first day of the month with a maximum deadline extended to the 15th of the month. The first payment becomes due a month after the “closing date’’ for the mortgage. The mortgage payment needs to be made monthly each month until the full amount with interest is returned.