Can Your Mortgage Cover Stamp Duty?

Cash flow can be tight when you’re purchasing a new home, so how do you afford things like stamp duty, and can you add this additional cost to your mortgage?

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Home Mortgage Application Can Your Mortgage Cover Stamp Duty?
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: May 21, 2024

In this article, we’ll look at whether it’s possible to add stamp duty to a mortgage, what other options are available if you can’t afford to pay it all upfront and where to look for the right guidance.

Can you add stamp duty to your mortgage?

Yes and no. Technically there isn’t a special type of arrangement that allows you to add stamp duty to your mortgage, but you can work around this by simply reducing the amount of deposit you put down and using the money to pay stamp duty instead.

Let’s look at an example of how this could work (using SDLT rates applicable for England and Northern Ireland correct at the time of writing – May 2024):

Let’s say you are buying a £450,000 property, (not as a first-time buyer), and have £100,000 to put down as a deposit. This gives you an LTV (loan to value) of 78% and means you’d need to borrow £350,000.

Because most residential mortgage lenders are happy with LTVs between 75%-80%, you could instead choose to borrow £360,000, pay £90,000 as a deposit and use the extra £10,000 to cover the stamp duty (5% on properties valued between £250,001-£675,000). Your LTV would still be acceptable to most lenders and you’d owe the stamp duty equivalent as additional borrowing on your mortgage.

Adding stamp duty to a mortgage comes down to meeting affordability requirements around how much you can borrow and having enough deposit left to meet the lender’s LTV requirements.

If in the above example, the lender was happy with a 10% deposit and borrowing of £405,000 then you could in theory put down £45,000, pay for stamp duty and other costs and use the rest to go on holiday if you wanted to – it’s entirely up to you! Just be aware that the higher the deposit, the better rates you normally qualify for and the less you will pay overall.

If you want to work out some more examples more specific to your own current situation, you can use our calculator below:

calculator icon

Stamp Duty Calculator

This calculator can tell you how much Stamp Duty Land Tax you will need to pay on your property purchase, whether you're a first-time buyer, a home-mover or in the market for an investment property.

Enter an amount in pound sterling
£

Your stamp duty to pay is:

Your effective tax rate is

Now that you've worked out how much stamp duty is payable, it's a good idea to talk to a broker about your mortgage options. Their knowledge and expertise can help you make sure you aren't paying over the odds with all costs and fees factored in.

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Is it possible in Scotland and Wales?

Although the rules for stamp duty in Scotland and Wales are slightly different from those in England, that doesn’t mean you won’t be able to add stamp duty or LBTT (Land and Buildings Transaction Tax) to your mortgage. As long as you still have a low enough LTV to be eligible for your mortgage and can afford the higher monthly repayments, you’re free to use any sacrificed deposit money as you choose.

Can stamp duty be added to a second home mortgage?

Yes, again it simply comes down to eligibility and affordability. If you have enough cash to cover a suitable deposit and your lender is happy that your higher level of borrowing is affordable, then your stamp duty can be added to a second home mortgage.

What to do if you can’t afford stamp duty

Adding stamp duty to your mortgage like this does end up being an expensive way to do it because you’re paying it back over such a long period. For example, if you borrow £10,000 at 5.5% over 25 years you will end up repaying £18,423 overall. Most experts would advise only adding stamp duty to your mortgage like this if there is no other way for you to find the money.

But what are the alternatives if you can’t afford to pay stamp duty or don’t have the scope to sacrifice any of your deposit?

Your first step should always be to talk to a broker, as they will be able to assess your situation and give you advice on all of your options. For example, they may be able to find you a lender who will consider a 95% LTV mortgage if that could help you free up cash, or a lender who would look at a 5.5 times salary mortgage if the maximum borrowing cap is an issue.

Keep in mind that regulations were introduced in 2018 so that you can no longer pay stamp duty with a credit card. This is to reduce the risk of homeowners over-committing themselves and getting into financial difficulty.

If you get in touch we can arrange for a mortgage broker we work with to contact you directly and discuss further.

Can a first-time buyer add stamp duty to a mortgage?

Yes, a first-time buyer can in principle reduce their deposit amount and borrow more to cover stamp duty. The difficulty here might be that first-time buyers have less flexibility with their deposit as they don’t have equity in an existing property and have had to save from scratch.

The good news for first-time buyers though is that if they buy a house for less than £625,000 they will qualify for stamp duty relief. In these circumstances, anything under £425,000 won’t be liable for any stamp duty at all and the portion between £425,001 and £625,000, if there is any, will be charged at 5%.

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Which lenders allow adding stamp duty to mortgages?

Adding stamp duty to a mortgage isn’t a specific product feature that varies from one lender to another and so depending on your other circumstances, it may be possible with any lender.

Work with your broker to look at your overall financial position, the amount of cash you have available and how increasing the amount you borrow could impact affordability and rates. This will give you a strong basis from which to make an informed decision about how best to manage your borrowing.

Can you use equity to pay stamp duty?

Yes, if you’re selling one home and buying another one then the equity from your existing home can be used flexibly depending on your situation. If you want to use some of the equity to pay for things like stamp duty it would simply mean increasing the amount you borrow on your new mortgage.

Get matched with a broker to get the most for your money

Deciding how much to borrow and how to fund costs like stamp duty can be complicated and it can sometimes be hard to work out the most cost-effective way to manage everything. This is where a broker can help. By comparing rates from different lenders at different LTVs they’ll be able to help you figure out which deal is right for you and keep your overall costs as low as possible.

All of the advisors we work with have been pre-vetted by us so give us a call now on 0808 189 2301 or make an online enquiry and we can assess your situation and match you with the broker who’s right for you, completely free of charge.

Maximise your chance of approval with a dedicated specialist broker

Get Started Phone Icon 0808 189 2301

FAQs

As long as you still have enough deposit to be eligible for a mortgage, you’re free to use any extra cash for whatever purpose you see fit. Just be aware that it works out a lot cheaper to pay these costs upfront than to add them to a mortgage, so it might be worth saving for a little longer so that you have more money available.

Ask a quick question

We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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