Introduction
When purchasing property, you can encounter various costs. Among these costs, Stamp Duty is a significant expense, often prompting the question: Can stamp duty be added to a mortgage?
Understanding Stamp Duty
Stamp duty, or Stamp Duty Land Tax (SDLT), is levied upon purchasing a property or land. The rate is based upon the property’s value and its classification as residential or non-residential.
For first-time buyers, there may be a different set of financial implications.
Stamp Duty Costs: A Detailed Breakdown
Stamp duty rates are determined by price bands, known as SDLT thresholds, these thresholds have been in place since 23 September 2022, they are:
- £150,000 for non-residential land and properties.
- £250,000 for residential properties.
- £425,000 for first-time buyers of residential properties valued up to £625,000.
You can find full details of the threshold and rates on Gov.uk-Stamp Duty Land Tax.
Residential Freehold Properties: Current Rates
The current Stamp Duty rates for residential freehold properties are tiered as follows:
- Up to £250,000: 0%
- £250,001 to £925,000: 5%
- £925,001 to £1.5 million: 10%
- Above £1.5 million: 12%
If you would like to calculate your potential Stamp Duty liability you can use our Residential Stamp Duty Calculator.
Find out Your Options
Leasehold Properties: Understanding Stamp Duty
For new leasehold sales and transfers, Stamp Duty is applicable on the lease premium. The above-mentioned rates apply to these premiums, with an additional 1% on any net present value over £250,000 for the lease’s duration.
The First-Time Buyers Advantage
First-time buyers enjoy relief from Stamp Duty:
- Up to £425,000: 0%
- £425,001 to £625,000: 5%
Beyond a £625,000 property value, the standard rates apply.
Additional Properties and Non-Residential Transactions
If you purchase an additional residential property and it results in owning more than one, you will typically incur an extra 3% in Stamp Duty Land Tax (SDLT) on top of the standard rates. However, if you sell your previous main home within 36 months, you may request a refund of the extra SDLT paid.
If you would like to calculate your potential Stamp Duty liability on an additional property you can use our Buy to Let Stamp Duty Calculator.
When to Pay Stamp Duty
Completing a property purchase triggers a 14-day deadline to pay Stamp Duty. This is typically handled by your solicitor, adding the Stamp Duty cost to their service fees.
Can Stamp Duty Be Added to Your Mortgage?
In short, yes, it is possible to add Stamp Duty onto your mortgage, but it is subject to the mortgage’s criteria and affordability.
The Risks of Adding Stamp Duty to Your Mortgage
Including Stamp Duty in your mortgage could result in:
- Increased borrowing, leading to higher overall debt.
- Altered loan-to-value (LTV) ratios, potentially increasing interest rates.
- Additional interest over the mortgage term, significantly inflating the total cost.
Expert Guidance is Key
When looking at your mortgage options, we recommend you seek expert advice. A whole of market mortgage advisor like Kerr & Watson can compare all mortgage products available to you and advise on the best option for you.
Our Stamp Duty calculators can also be a good tool for you to understand your costs initially.
Conclusion
Adding the Stamp Duty costs to your mortgage, while technically feasible, may lead to higher long-term costs.
Prospective homeowners should consider all options and seek professional advice to ensure the most financially prudent approach.
For tailored mortgage advice that aligns with your specific situation please contact us.
