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Homebuyers spend more on stamp duty by dipping into deposit – Coventry BS

  • 14/02/2024
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Homebuyers spend more on stamp duty by dipping into deposit – Coventry BS
Homebuyers spend more on stamp duty than expected when they pay the levy instead of contributing to their deposit, analysis from a mutual has found.

Coventry Building Society calculated that some buyers needed to borrow extra on their mortgage because they had put their money towards stamp duty, and this was bringing the true cost of the tax up by 66.9 per cent on average. 

The mutual said this was according to the interest paid over the life of a mortgage. 

Based on a rate of 4.51 per cent, someone borrowing £5,000 more to cover the stamp duty payment on a £350,000 home will pay £8,346 over the term of a 25-year mortgage. This represents a 66.9 per cent increase. 

A lower-valued home of £300,000 with a stamp duty bill of £2,500 would see a homebuyer pay £4,173 to cover this if they borrowed more on their mortgage. This would also be a 66.9 per cent jump on the original cost. 

At the top end, borrowing more for a £1m home with a stamp duty bill of £41,250 would result in an owner paying £68,856 instead, which is also a 66.9 per cent increase.


Stamp duty a ‘burden’ to homebuyers 

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.” 

He added: “Not only does it put a lag on the market, it disincentivises downsizers, stifles the private rental sector (PRS) 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 (LTV), so typically get a better rate of interest.” 

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