How you can pay no Council Tax for a year

TSB is stumping up a year's worth of Council Tax bills to new mortgage customers taking certain deals. It says its research found that Council Tax is the biggest monthly expenditure for more than half of people (55%), after they've paid their monthly mortgage bill.

It also found that when it comes to new homeowners' financial concerns, paying Council Tax is the third most common worry, only beaten by the boiler breaking down and estimating utility bills.

How the deal works

TSB's Council Tax offer is worth up to a maximum of £2,500 to both first-time buyers and home movers and available on mortgages of 75-90% loan-to-value.

To claim the money, borrowers need to send TSB a copy of their Council Tax bill for the year once they have moved into their new home. The amount is paid into their bank account within 21 days. It is then up to the borrower to pay their local authority.

The amount paid will be based on the Council Tax element of a bill. Additional charges for water, utilities and sewerage, typically included in Scotland, will not be included.

Buy-to-let, shared equity and shared ownership mortgages are not included in the offer.

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Council Tax bills

Council Tax is billed per property, with the amount you have to pay set by the local council. It differs according to the total amount of money the council needs to raise and the valuation band, from A to H, which your property falls into. Properties were last valued for council tax in 1991.

The highest band is H, which includes all properties that were worth more than £320,000 in 1991. Band D are those that would have sold for between £91,000 and £123,000 in 1991. Band D is considered the average and generally used for comparisons.

Council Tax bills can vary considerably across the country. Some of London's most affluent areas – such as Fulham, Belgravia, Westminster and Pimlico – have some of the lowest Council Tax in the country.

Councils that charge the most include Rutland (£1,704 on average), Hartlepool (£1,691) and Newark & Sherwood (£1,688).

Doing the sums

TSB's Council Tax offer is basically a cashback deal, similar to Virgin Money's recent Help To Buy cashback offer.

To work out if it's a good deal for you, and the home you're planning to buy, you need to know what your Council Tax bill will be and factor this figure into your calculations.

The best way to compare mortgages is to work out the total cost over the fixed term of the deal including fees, monthly payments and any cashback. So for a two-year fixed rate you need to work out the total cost over two years, and for a five-year fixed rate it will be five years. You can do just that with the lovemoney.com mortgage centre.

In general the bigger your mortgage, the more important the rate and the less important the size of the fees.

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How does TSB compare?

For first-time buyers with a loan-to-value of 75% to 80% TSB is offering a rate of 2.79% fixed for two years with a total of £1,260 in fees.

The average Band D Council Tax bill for a property in England is £1,468 so we'll use that figure to compare TSB mortgages against rivals.

Over two years, taking the rate, fees and Council Tax cashback into account, a borrower with a £200,000 mortgage would pay a total of £22,033.28

In the same LTV bracket, Leeds Building Society is offering a two-year fixed rate at 2.84% with a £199 fee and £500 cashback. The total over two years comes to £22,063.64. This means TSB would be about £30 cheaper.

However it's a different story for five-year fixed rates – TSB doesn't come out so well.

Over five years, first-time buyers with a deposit of 15% to 25% can get a fixed rate of 4.14% with TSB, paying a total of £1,260 in fees. Assuming a £200,000 loan this would equate to a total of £64,063.40 over five years taking the Council Tax cashback into account too.

Broker John Charcol is offering a comparable five-year fixed rate deal with a rate of 3.25% and total fees of £1,309. Over five years this would come to a total of £59,786.80 – £4,276.60 cheaper than the TSB deal.

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