Can you add stamp duty to a mortgage?

When it comes to applying for a mortgage, we want all the help we can get.

Managing your finances and getting all your savings together can be hard, especially when there’s so much to think about: mortgage payments, advisor fees, tax, etc. The one question we get asked a lot is if it’s possible to add the cost of stamp duty to a mortgage. 

It makes sense to wonder this, since spreading the cost would make it more manageable, especially for first-time buyers. But can it be done? 

We’ll get right into that today, explaining what stamp duty is, how it works across the UK, and whether you can (or should) bundle it into your mortgage. If you’re looking for more mortgage advice, contact our Liverpool mortgage brokers today. 

What is stamp duty?

Stamp Duty Land Tax (SDLT) is a government tax you pay when you buy residential property, such as a house or flat. 

How much you pay will depend on when you bought the property, how much you paid for it, and whether you’re eligible for any exemptions to help with the cost. Stamp duty must be paid within 14 days of the day the property purchase was completed, or you’ll be left with interest.

In England and Northern Ireland, SDLT applies to residential purchases above a set threshold, calculated in bands. For example, if you’re buying a £300,000 home in England, you’d owe £5,000 of SDLT (calculated on the portions above £125k).

Here are the basics to understand:

• England and Northern Ireland: You don’t pay any SDLT on the first £125,000 of a property. However, you pay 2% on the next £125,000, 5% on the next £675,000, and 10% on the next £575,000. For additional properties, a surcharge (5%) is added to the standard rates for each band.

• Wales (Land Transaction Tax, LTT): Wales has its own band structure that differs from England’s. You don’t pay any LTT on the first £225,000 of a residential property. After that, Welsh rates start at 6% (for £225,001–£400k) and increase in tiers (7.5% on £400k–£750k, etc.). There’s no first-time buyer exemption in Wales.

• Scotland (Land and Buildings Transaction Tax, LBTT): Scotland also has its own band structure. You’ll normally pay 0% up to £145k, then 2% up to £250k, and 5% up to £325k. First-time buyers in Scotland benefit from no LBTT on the first £175,000 of the purchase price. 

  
  

First-time buyers in England don’t pay any stamp duty on the first £300,000 of a property priced up to £500,000, and 5% on the portion from £300,001 to £500,000.

Can you add stamp duty to your mortgage?

So, is there a way to finance the stamp duty bill through your home loan instead of paying it upfront?

Technically, the answer is no, since there isn’t a special process you can take to add the stamp duty charge onto your mortgage as a specific finance product. However, there are ways you can work around it.

Provided you meet all of the affordability requirements, and your lender allows you to do so, you can borrow a bit extra on your mortgage to cover stamp duty costs. What this means is you’ll pay less on your deposit and increase your loan amount. 

As long as that new loan-to-value (LTV) ratio and your income can support the higher loan, there’s a good chance the lender will approve you for it. That way, you’ve financed the stamp duty by borrowing more against the property.

What are the pros and cons of adding stamp duty to a mortgage?

Before jumping into the decision, it’s important that you understand the financial implications of opting for a higher loan to cover stamp duty costs. 

Advantages

Having less to pay off at once can feel like a weight lifted off your shoulders, especially for first-time buyers. It gives you more time to get your affairs in order and save for other moving costs, such as renovations, home insurance, and furniture.

It can also make buying a home more in reach, especially if you’ve been worried about paying off stamp duty and handling mortgage repayments. All in all, it sounds very appealing to a new buyer, so what’s the issue?

Disadvantages

While it seems like a great deal when you're going into it, you need to consider the long-term issues. 

When you opt for a higher loan, you’ll be paying more interest on the property down the line. You could end up paying double the stamp duty and getting into some debt if the costs are too much, just to avoid paying it upfront. 

Since your monthly payments will also increase (which may result in higher mortgage fees or insurance costs), you need to make sure you can cover the higher loan costs before accepting it. 

Plus, increasing your loan relative to the property value raises your LTV, pushing you into a different tax bracket. If adding stamp duty to the loan takes you from (say) 80% LTV to 85% or 90% LTV, you might lose access to the very best rates.

What if I can’t afford stamp duty?

If you’ve decided that adding stamp duty to your mortgage loan isn’t the right choice for you, but you also can’t afford to pay it off up front, there are other options available. 

1. First-time buyer relief

Remember, as a first-time home buyer, you’re entitled to some relief.

Properties up to £300,000 will incur no stamp duty, and you’ll be given a discounted rate for properties over £500,000. This will be a big help when saving and planning for a mortgage, so it might be worth looking at properties within the tax-free band to save money.

2. Gifted funds

When applying for a mortgage, financial support from family and friends can be a great help if they have the means to help out.

A gifted deposit from your parents or grandparents can be used to help cover the stamp duty, so you have one less thing to worry about. Most lenders accept gifted money from close relatives, though you’ll need a gift letter stating it’s not a loan. 

3. Save and plan ahead

While an obvious answer, it’s the best place to start. Saving up for a few years can help massively when it comes to actually applying for a mortgage. 

Even if it means putting away a little bit of money a month, it will soften the blow when it comes to finally paying off any fees and stamp duty. Putting your savings in a high-interest savings account or an ISA will help you get your funds up quicker. 

4. Equity from your current home

If you already own a property and you’re selling it off to purchase a new home, you could use the proceeds from your sale to cover the stamp duty on the new purchase.

Just adjust how much equity you carry over as a deposit versus cash in hand, and set aside some money for stamp duty and take a slightly larger mortgage on the new house.

Chat with our mortgage brokers in Liverpool 

With access to over 75 lenders, we will help you find a lender that will accept a higher loan amount and a lower deposit to cover stamp duty costs. 

We have a variety of specialist lenders that you can’t find on the high street, giving you a better chance of approval. Call us today to speak to one of our mortgage advisors and find out how we can help reduce the stress of finding a mortgage for first-time buyers.