Can a Mortgage Cover Stamp Duty?

The process of applying for a mortgage to buy a property can be tricky and stamp duty is another piece of the puzzle to figure out. It is possible to add the amount you need to pay for stamp duty onto your mortgage but is that the best thing to do in the long run?

By following this guide you’ll have a better understanding of what stamp duty is, how much it will cost on the property you’re looking to buy and whether adding it to your mortgage is the right option for you.

What is stamp duty?

Stamp Duty Land Tax, as it’s officially known, is payable when you’re buying a property or a piece of land over a particular value. It was brought into effect in 1684 with the original intent of raising additional funds for the government. It’s been so successful in doing exactly that across many European countries that it’s still around today.

In the United Kingdom, it has to be paid to HMRC within 14 days of completion of your purchase.

How much does it cost?

How much to pay and who has to pay differs depending on a few different factors:

1) Whereabouts in the UK you’re looking to buy

2) Whether you’re a first-time buyer

3) How much the land or property is worth

For example, first time buyers in England and Northern Ireland buying a property less than £301,000 are exempt from having to pay it all. If you’re not a first-time buyer and purchase a residential property for less than £125,000 or non-residential land or property for less than £150,000 you also get a free pass.

The same applies if you’re opting to buy a caravan, mobile home or a house boat. Anything outside that and you’ll be paying Stamp Duty – although there are various breaks and deductions that could apply.

Generally though, Stamp Duty starts at 2% on anything valued at over £125,000 and can go as high as 15%, depending on which value band the property or land you’re buying falls into. If it’s a second property you’re purchasing, the rates are slightly higher.

How much it costs in Scotland and Wales

In Scotland, things are slightly different. Stamp duty here is called Land and Buildings Transaction Tax and the percentages tend to be a little higher for properties over £325,000. And in Wales, what’s called the Land Transaction Tax is slightly different again so it’s worth connecting with an experienced local broker who can help you calculate exactly what you have to pay depending on your location and individual circumstances.

How do you pay?

This is done through HMRC in what’s called a stamp duty return, something a broker can help you submit. It must be paid within 14 days of sale completion and even if you’re lucky enough not to have to pay anything, you must submit the paperwork saying so.

When it comes to finding the money you need to pay the stamp duty, there are a few different options:

If option 2 is the route you think is right for you, here’s how to go about doing it.

How to add it to a mortgage

If you want to add the stamp duty payment to your mortgage, in essence what you’ll be doing is reducing the size of your deposit so you have enough cash to send it as one payment to HMRC.

So, what you need to do is find a lender who will accept a lower deposit. There’s a few steps you can take in order to improve your chances of success. This is how we’d recommend you do it.

Is it advisable to add stamp duty to a mortgage?

Whether or not adding stamp duty to a mortgage is advisable depends entirely on your personal circumstances.

The plus side of adding it means you don’t have to have the money upfront and you don’t have to eat into your deposit. You can pay the money back over time.

The downside of that is the amount of money you’re borrowing is ultimately a bigger amount. This means it will take longer to pay back and could impact the type of mortgage you’re able to get.

The biggest drawback of putting stamp duty onto your mortgage is that you’d be paying more for it overall, as you’d be charged interest on this charge over the course of 25 years (or however long your mortgage term length is). With this in mind, most experts only recommend putting stamp duty onto the mortgage if there are no other alternatives.

It’s not the ideal situation but if it’s the option that works for you, then a good broker can help you work out all the details.

Get matched with an experienced mortgage broker

Whether you’re a first time buyer or multi-property owner, based in England, Scotland, Wales or Northern Ireland, we can pair you with a mortgage broker that has the best experience for your needs. The advisors we work with help people find the best solution to their stamp duty bills every day, and they’re best positioned to guide you through the process.

Call 0808 189 0463 or make an enquiry and we’ll set up a fee, no-obligation chat between you and your ideal mortgage broker today.