Target Group warned lenders that planned changes to local authority funding could mean Council Tax rises of over 25% in parts of London and the South East, making it harder for borrowers to keep up with payments.
Last month, Angela Rayner set out plans for a new approach to local authority funding; the Government’s ‘Fair Funding Review’ aims to shift money to councils in the North with higher needs.
This could cut grants for some wealthier councils, with areas like Camden, Hammersmith & Fulham, and Wandsworth facing large funding gaps.
One council said it expected a £30.1m shortfall in 2028-29, and that a 1% council tax rise would only bring in £1.1m.
It would need to push up council tax by 27.4% to fill the gap.
Melanie Spencer (pictured), growth director at Target Group, said: “It’s early days but if these reforms proceed as planned, some boroughs could lose more than 70 per cent of their current government grant.
“Lenders should be deeply concerned that the government’s proposals could leave local authorities in the position of having to ramp up council taxes by more than a quarter.
“Borrowers in those local authorities won’t have budgeted for this. And this could well be the thin end of the wedge.
Spencer added: “If councils across the south east and south west of the country start having to put up council tax by more than 25 per cent, borrowers in those areas are going to find themselves very stretched.
“We are calling on lenders to ensure their collections teams are in good enough shape to be able to handle a potential surge in arrears.
“Lenders need to focus on using data intelligently to identify borrowers who may be starting to struggle and early engagement with people who have started to slip into arrears.”
She said: “The cost-of-living crisis is far from over and the support lenders offer will need to be targeted and timely.
“Lenders will need the right systems in place to manage processes proactively.
“Early contact and remediation are key to keeping repossession a last resort and achieving better outcomes for borrowers and lenders alike. That requires investment in systems.”
