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Does a mortgage cover stamp duty

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 13, 2023

Does your mortgage cover stamp duty?

It can be difficult to apply for a mortgage to purchase a property. Stamp duty is an additional piece to the puzzle. You can add stamp duty to your mortgage, but is this the best option?

This guide will help you understand stamp duty, how much stamp duty costs, the cost of the property and whether it is worth adding stamp duty to your mortgage or paying stamp duty.

A few factors can affect how much stamp Duty that you are charged. These include where you live, market value, and whether or not you are a first-time purchaser. These factors will affect your ability to stretch your money to pay Stamp Duty.

Constitute financial advice today, as a mortgage broker we can explain about a stamp duty payment and how it will vary with the property price.

Let’s first look at the differences in the Stamp Duty rates across the UK.

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What is Stamp Duty?

Stamp Duty Land Tax is what it’s called officially. It’s payable when you buy a property or piece of land that exceeds a certain value. It was established in 1684 to raise additional funds for government. It has been so successful in accomplishing exactly this across many European countries, it is still available today.

It must be paid to HMRC within 14 calendar days of the completion of your purchase in the United Kingdom.

What is the cost of stamp duty?

There are a few factors that can affect the amount and who you have to pay.

1) Where are you looking for a property in the UK?

2) No matter if you are a first-time buyer

3. How much is the land or property worth?

First-time buyers in England or Northern Ireland who purchase a property for less than £301,000 are exempted from paying it all.

You can also receive a free pass if you are not a first-time purchaser and you purchase a residential property less than £125,000, or non-residential property less than £150,000.

If you are buying a caravan, mobile house or houseboat, the same applies. You’ll have to pay Stamp Duty for anything beyond that, although there may be other deductions and breaks that might apply.

Stamp duty is generally 2% for any property or land valued over £125,000, but can rise to 15% depending on the value band that you purchase. The rates may be slightly higher if you are purchasing a second property.

The rates for England and Northern Ireland are the same, while Scotland and Wales have different rates.

Based on the Stamp Duty Rate in England, if you purchased a property for £300,000.00, you would pay £5,000 Stamp Duty.

Lenders will offer loans with a minimum of 85% LTV, regardless of your financial and personal situation.

With that in mind, a buyer would need to make a 15% deposit in the amount of £45,000 and funds for Stamp Duty (which in this case would be equivalent to £5,000).

The cost of Stamp Duty is not covered by a mortgage lender so you will need sufficient equity to purchase a property or extra funds set aside to pay for moving expenses such as removal fees, solicitors fees, and Stamp Duty.

While it is understandable that not all borrowers have the money available for these costs, there are still options.

A buyer may reduce the amount they deposit, and the money saved could be used to pay the stamp duty.

Remember that if you reduce the amount of your deposit, you will have to apply for a larger loan. This could reduce your options for lenders, as some lenders may require a higher deposit depending on your situation.

A mortgage broker can assist you in overcoming these obstacles as they have access to hundreds of lenders across the UK. Some may require lower deposits while others will offer higher mortgages.

Send an enquiry to learn more and discuss your options.


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Scotland stamp duty

Stamp Duty in Scotland was repealed in April 2015 and replaced by Land and Buildings Transaction Tax, LBTT.

While many of the basic features of each tax system may be similar, there are some differences in the rates charged.

Based on these rates, if you wanted to buy a property of £200,000 and you were a buyer in Scotland you would have to pay £1,100.00 Stamp Duty.

For those who are asking “Will a mortgage cover Stamp Duty Scotland?” the answer is no.

A lender would need to lend you 85% of the property’s price. However, you will still need to deposit a 15% amount plus an additional £1,1000 Stamp Duty.

A lower Stamp Duty rate could enable a borrower to save money, and use it to make a larger deposit. This could lead to a wider selection of lenders and interest rates for them to choose from.

What are the best ways to pay stamp duty?

HMRC will issue a stamp duty return. A broker can assist you with this submission. You must pay it within 14 days of the sale. Even if you are lucky enough to not have to, you will need to submit the paperwork.

There are several options when it comes to finding the money to pay stamp duty.

Option 1: Have enough money saved up to pay for the property purchase. If you are not a first-time buyer of property in England, you will need to pay a deposit and additional £2,500 stamp duty.

Option 2: Take the money required for stamp duty from your deposit, and then seek additional financing for your mortgage using less deposit.


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If you are a first-time buyer, can your mortgage pay stamp duty?

You may also be subject to Stamp Duty depending on whether you are a first-time purchaser.

Good news: First-time buyers in England or Northern Ireland are exempted from Stamp Duty for the first £300,000.0 of their property if it is less than £500,000.

If you’re a first-time buyer looking to buy a property in England for £200,000, there won’t be any Stamp Duty.

If the property is a secondary home, can you pay stamp duty land tax with your mortgage?

You would have to pay £7.500 for Stamp Duty if the property above was bought as a second property.

On the first £125k, 3% Stamp Duty will be charged and 5% for the rest.

If a lender agrees to lend you 85% of the property’s price, will you be able to pay stamp duty with your mortgage payment?

The answer is no in this case. The loan would pay 85% of the purchase price of your new house. However, you will still need to deposit a 15% amount of £30,000 and an additional £1,500 for stamp duty.


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How do I get a mortgage that covers Stamp Duty?

You will need to apply to a larger loan to be eligible for a mortgage that covers the Stamp Duty.

You could also reduce your deposit. Although this would not allow you to use your mortgage for Stamp Duty, it would lower the upfront amount. It can be difficult to find a lender willing to accept smaller deposits depending on your situation. However, this doesn’t make it impossible. For more information, visit our low deposit section or talk to an advisor.

FAQ for stamp duty tax:

What about installments of stamp duty?

No you can’t pay stamp duty monthly or in installments. It is a lump sum payment that must be made withing 14 days of buying land or property to the government.

Can I make a payment on my credit card?

A debit card can be used to pay, but not a credit or bank card.

I have heard of a stamp duty refund. How do I find out if I am entitled?

A stamp duty refund is possible for those who have a property at the time they purchase additional property or land. However, the person must sell the first property within three years of the purchase of the second property to be eligible.

This is because stamp duties are higher for second properties, but you can still claim the difference if you have one property.

What is the stamp duty holiday?

This was an initiative taken by the UK Government during the COVID-19 pandemic. Stamp duty was suspended for more than a year for properties below £500,000 to stimulate the housing market and help the economy. Stamp duty is now in effect.

What happens if my stamp duty is not paid on time?

You could be fined if you miss the deadline of 14 days after your sale is completed.

Dont hesitate if you are unsure and contact us today to discuss stamp duty rates.


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