It is possible to add Stamp Duty to a mortgage by taking out a larger mortgage; however, this may not be advisable as it could impact your loan to value ratio and increase the rate of interest paid.
What Is Stamp Duty and How Does It Work?
Stamp Duty is a type of tax incurred when buying a property or piece of land in the UK. You will pay a different amount of Stamp Duty depending on the purchase price of the property and the property type (i.e. is it residential or not). If you are a first-time buyer, this will also affect the amount of Stamp Duty you will pay.
How Much Is Stamp Duty?
Although there was formerly a Stamp Duty holiday, a government implemented initiative introduced after the impact of the coronavirus pandemic, this holiday ended on 1st October 2021.
Since the holiday ended, any purchases over £125,000 will incur a Stamp Duty with a rate of 2% or more on their property depending on what Stamp Duty band they fall within.
The current Stamp Duty bands are as follows:
- £0 – £125,000 – 0%
- £125,001 – £250,000 – 2%
- £250,001 – £925,000 – 5%
- £925,001 – £1.5million – 10%
- Over £1.5million – 12%
How Is Stamp Duty Paid?
Typically, Stamp Duty is paid by your solicitor on your behalf. This is done as part of the home-buying process, and the home buyer is always the one ultimately paying for the Stamp Duty.
Stamp duty must be paid within fourteen days of buying a property or piece of land.
Can You Add Stamp Duty to a Mortgage?
Yes, in certain circumstances you can add Stamp Duty to your mortgage. However, in general, when you buy a property the only buying cost that tends to be added to your mortgage is the arrangement fee.
That being said, because Stamp Duty is paid after completion on a property, it would be possible to add this to your mortgage. This will depend on whether you can afford to take out a slightly bigger mortgage in order to factor the additional Stamp Duty.
However, the danger of adding Stamp Duty to your mortgage is that this money will also accrue interest over the length of the mortgage term. It may even push you into a higher interest rate bracket. Not only that, but it will affect your loan to value ratio. If you apply for more money, but the amount of deposit you put down is the same, your loan to value ratio will be bigger.
How Can I Add Stamp Duty to a Mortgage?
To get a mortgage to cover the cost of Stamp Duty, you will generally need to apply for a larger loan. However, the danger of this is potentially paying more in the long-run as you increase your monthly repayments and the amount of interest you will pay.
Before deciding whether to add Stamp Duty to a mortgage, it’s important to consider how this will impact your mortgage overall, and how this could add to the amount you pay back.
Should I Add Stamp Duty to My Mortgage?
Adding Stamp Duty to your mortgage will increase the overall amount that you need to borrow, and subsequently pay interest on. If you add Stamp Duty to your purchase, the interest rate of the loan will increase and you will also increase your loan to value ratio which could cause you to lose more money in the long run.
Can Your Mortgage Cover Stamp Duty if You Are a First-Time Buyer?
The rate of Stamp Duty will be impacted depending on whether you are a first-time buyer or not, with first-time buyers typically exempt from paying Stamp Duty. For first-time buyers in England and Northern Ireland, there is no need to pay Stamp Duty on the first £300,000 of the property if it is valued at less than £500,000.
What Other Ways Are There To Pay Stamp Duty?
If you want to pay off your Stamp Duty, and are working with a solicitor or conveyancer to help with the purchase, you can usually pay the Stamp Duty directly for them and they can organise everything for you. You can also choose to pay HMRC directly and cut out the middle man.
What you cannot do is pay off your Stamp Duty in instalments; it will need to be paid in full. You also are not able to pay your Stamp Duty on a credit card due to restrictions brought in back in 2018.
