What is Stamp Duty and how will it affect my mortgage?

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Stamp Duty is a tax paid on the purchase of properties in England that are worth more than £125,000. In Scotland, it’s called Land and Building Transaction Tax and applies to homes worth £145,000 or more, while in Wales, it’s also called Stamp Duty, but the threshold is £180,000. For commercial properties, different rates apply.

There are a few things to consider when it comes to how much Stamp Duty you might have to pay when you buy a property.
These include where you live, how much your property is worth, and if you are a first-time buyer.
Also, if you’re buying a rental property or a second home, you may be liable to pay an extra 3% in Stamp Duty.

How much is Stamp Duty?

In England (and Northern Ireland), the following Stamp Duty rates apply:

Property value

Standard Stamp Duty

Second Property Stamp Duty

Up to £125,000

0%

3%

£125,001-£250,000

2%

5%

£250,001-£925,000

5%

8%

£925,001-£1.5 Million

10%

13%

£1.5 Million+

12%

15%

So, if the property you were buying was worth £150,000, you would have to pay £3,000 in Stamp Duty.However, first-time buyers qualify for what’s known as Stamp Duty Relief, which means they are not charged Stamp Duty on the first £300,000 of homes worth up to £500,000. Beyond that, they will pay the reduced rate of 5% Stamp Duty on the remaining proportion of the property between £300,000 and £500,000.

If you are buying another property, a surcharge is applicable to rental properties, second homes and holiday homes. This equates to an additional 3% unless the property costs less than £40,000.

How does Stamp Duty affect my mortgage?

When you are applying for a mortgage, it’s important to consider any potential Stamp Duty charges. Although it varies from lender to lender, depending on your financial situation, lenders will typically offer mortgages with a Loan to Value Rate (LTV) of 85% or lower.

The LTV is basically the percentage of the property’s full value that your lender will provide as a mortgage. So, on a £150,000 home, a 15% deposit would equate to £22,500, which would go up to £25,500 if you had to pay 2% Stamp Duty on top – not a problem for first-time buyers, but if you are already on the property ladder, this is a significant additional cost.

Unfortunately, most lenders won’t provide a mortgage that helps you meet your Stamp Duty liabilities, so you would need to factor this additional cost in when it comes to working out the overall cost of buying a home. Before you take the plunge, it’s also worth considering what else you will be required to pay – as legal fees and moving costs will also add up and may affect the size of the deposit you can put down.

However, if you put down a smaller deposit, you will need to apply for a larger mortgage (or a mortgage with a higher LTV). While some lenders do offer mortgages with an LTV higher than 85%, this will narrow your options and may also mean you pay a higher rate of interest, which could work out more costly in the long run.

So, if you’re looking to buy a home and want to understand all the ins and outs before you take the plunge, including how you may be affected by Stamp Duty, an expert mortgage broker can help. They can connect you with the best lenders and mortgages that match your circumstances and help you understand how Stamp Duty works and how it might affect you.

Learn more

Whether you’re a first-time buyer or ready to take your next step on the property ladder, Stamp Duty can have a big impact on your purchase, so you need to understand all your options before you take the plunge. My Mortgage Pro can connect you with an expert mortgage broker who can help you find the best solution. To find out more, fill out the form below to request a call and we’ll be in touch.