The hidden costs of Stamp Duty revealed

The hidden costs of Stamp Duty revealed
Christina Hoghton
Written By:
Christina Hoghton

The true cost of Stamp Duty is higher than many homebuyers think.

That’s according to Coventry Building Society, which has calculated that the ‘true cost’ of Stamp Duty is 66.9 per cent higher than the tax bill itself.

The mutual said this leaves homebuyers spending thousands of pounds more than they might realise.

It explained that ‘by paying the taxman rather than contributing towards their deposit, many homebuyers need to borrow extra and end up paying thousands more in interest over the life of the mortgage’.

Real cost revealed

The building society calculated that someone borrowing £5,000 more to cover the Stamp Duty on their £350,000 home will actually pay £8,346 over the term of a 25-year mortgage – an increase of 66.9 per cent. This is assuming a mortgage rate of 4.51 per cent.

Those buying a property for £500,000 would face a £12,500 Stamp Duty bill. But according to Coventry, the true cost of borrowing that money with interest over a mortgage term is actually £20,865.

Jonathan Stinton, head of mortgage relations at Coventry Building Society, said: “After they get their keys, people have a two week grace period to cough up thousands of pounds in Stamp Duty. If they don’t have that lying around the chances are they’ll need to eat into their deposit to cover the bill, meaning the amount they pay in real terms shoots up by thousands.

“Stamp Duty is already considered a burden to homebuyers, but this shows it’s a more damaging liability than people perhaps realise. It adds to the long list of reasons why Stamp Duty should be top of the Chancellor’s priorities this Budget. Not only does it put a lag on the market, it disincentivises downsizers, stifles the private rental sector by imposing a three per cent surcharge, and it’s costing many homebuyers thousands more than they realise.

“As a basic rule of thumb, buyers taking a 25-year mortgage at a rate of 4.51 per cent will pay around 67 per cent more if they need to borrow extra for their tax bill – and this will be even higher if they take their mortgage over a longer term.

“The extra borrowing can also make a difference to the rate they pay, as people with larger deposits have a lower loan to value so typically get a better rate of interest.”