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Should You Add Stamp Duty to a Mortgage?

Can You Add Stamp Duty to a Mortgage?

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.

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.

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%

Typically, Stamp Duty is paid by your solicitor on your behalf. This is done as part of the 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.

Adding Stamp Duty to a Mortgage

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.

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