When purchasing a new home, managing finances and budgeting is crucial. One significant expense that arises is stamp duty – a tax paid on property purchases in the UK. Many homebuyers wonder if they can add the cost of stamp duty to their mortgage, particularly those buying for the first time. This would spread this substantial cost over the period of the loan.
As leading new home builders, Lovell Homes are here to help. In this article, we will explore how adding stamp duty to your mortgage works and discuss the potential financial implications to help you make a well-informed decision about financing your new home.
When Do You Pay Stamp Duty?
Stamp duty is payable when you purchase a residential property or land over a certain value in the UK. However, the exact timing of the payment varies. Stamp duty payment is typically required to be paid within fourteen days following the completion of the property purchase. The completion date is the day when all contracts are signed and the keys are handed over, marking the official transfer of the ownership. To avoid any potential penalties or interest charges, it is essential to ensure that funds are available to meet this deadline.
Is Adding Stamp Duty to Mortgages Worth It?
Deciding whether to add stamp duty to your mortgage depends on several financial factors and your personal financial circumstances. While it may be appealing to include stamp duty in your mortgage to avoid a large upfront payment, there are both advantages and disadvantages to consider.
Advantages of Adding Stamp Duty to a Mortgage
- Immediate financial relief: By adding stamp duty to your mortgage, you can spread the expense over the term of the loan, easing your immediate financial costs.
- Liquidity: Adding stamp duty to your mortgage preserves your cash reserves. You could then use these reserves for other immediate house moving costs, such as buying furniture or renovation.
Disadvantages
- Increased loan amount: Incorporating stamp duty increases the total amount you borrow, which can affect your loan-to-value ratio and potentially result in less favourable loan terms.
- Higher total interest: Putting stamp duty on your mortgage means you will be paying interest on a larger amount. This will increase the total amount of interest paid over the term of the loan.
It is important to weigh up these factors carefully. Knowing exactly how much stamp duty you are expected to pay can significantly simplify the path you take. If you are uncertain about your potential stamp duty costs, why not use our stamp duty calculator? By using our calculator to receive an estimate, you can determine whether adding stamp duty to your mortgage aligns with your long-term financial goals.
Can You Pay Stamp Duty Tax in Instalments?
In the UK, the general requirement is that stamp duty tax must be paid in full within fourteen days of completing the purchase of a property. This deadline is strict, and failing to meet it can result in penalties.
However, there are specific circumstances under which payment arrangements might be considered. For instance, you may be buying a property in stages – a practice common in shared ownership schemes. The payment of stamp duty can be split accordingly in this instance, and you may not need to pay it upfront in full. Instead, you could pay the stamp duty tax in instalments as you increase the ownership over time.
Options to Consider
When purchasing a property, planning for stamp duty is an essential step every homebuyer should be aware of. Fortunately, there are several options available to mitigate its financial costs:
- Help with Mortgage and Stamp Duty Costs: Fortunately, we at Lovell Homes can help with paying your stamp duty*. We also offer help with mortgage costs via our Mortgage Contribution* scheme. For more information, see our offers.
- Gifted Deposit: Family members can gift funds that can be used towards the payment of stamp duty. This can especially help first time buyers to manage the upfront costs associated with purchasing a new home.
- Saving Plans: For those planning to buy in the future, it may be wise to set up a savings plan specifically for stamp duty. Spreading the stamp duty cost over time this way can make the home-buying process much more manageable. Even if adding stamp duty to your mortgage turns out to not be an option later, planning for it in advance may ease the saving process.
*Subject to changes
Adding Stamp Duty to Your Mortgage
In summary, adding stamp duty to your mortgage can sometimes be a feasible option for managing the cost of this tax when purchasing a property.
While it is not universally available for all mortgage products, some lenders may allow you to include stamp duty as part of your mortgage loan. This approach can alleviate your initial cost by spreading it over the period of your loan. However, this can result in higher overall costs.
It is important to understand the implications of increasing your loan amount and to consider your options prior to making the decision. Whether you can add stamp duty to your mortgage loan will depend on many factors and you should always seek professional financial advice prior to committing.
Ready to commit? See how Lovell Homes can help you pay your stamp duty today.
