Can Stamp Duty Be Added to a Mortgage?

Property transactions involve various financial considerations beyond the purchase price. For those acquiring land or property in England and Northern Ireland, Stamp Duty Land Tax is one such consideration. Understanding how this tax integrates with financing, particularly mortgages, is important for prospective property owners.

What is Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) is a tax levied on purchases of land and property in England and Northern Ireland. It applies to both residential and non-residential properties when the purchase price exceeds specific thresholds. The purpose of SDLT is to generate revenue for the government from property transactions.

The amount of SDLT due depends on several factors, including the property’s value, whether it is residential or non-residential, and the buyer’s circumstances, such as being a first-time buyer or purchasing an additional property. For instance, as of April 1, 2025, residential properties costing over £125,000 are generally subject to SDLT. First-time buyers may receive relief, paying no SDLT on properties up to £300,000 and a discounted rate on properties up to £500,000.

SDLT is typically paid by the buyer within 14 days of the transaction’s completion. While the tax applies in England and Northern Ireland, different property transaction taxes exist in other parts of the UK: Scotland has the Land and Buildings Transaction Tax (LBTT), and Wales has the Land Transaction Tax (LTT).

Adding Stamp Duty to Your Mortgage

You can include the Stamp Duty Land Tax amount within your mortgage, increasing the total loan to cover both the property’s purchase price and the associated SDLT. While this alleviates the immediate financial burden of paying the tax upfront, the SDLT portion will accrue interest over the entire mortgage term.

Not all lenders allow adding SDLT to a mortgage; it depends on their specific policies and the borrower’s financial standing. Borrowing more to cover SDLT will increase your overall debt and subsequently raise your monthly mortgage repayments.

Lender Considerations for SDLT Inclusion

When a borrower seeks to include Stamp Duty Land Tax in their mortgage, lenders evaluate several key factors to determine eligibility and terms. A primary consideration is the Loan-to-Value (LTV) ratio, which compares the loan amount to the property’s value. Including SDLT increases the total borrowed amount, which in turn raises the LTV, potentially affecting the interest rate offered or even the availability of certain mortgage products. Lenders typically have maximum LTV limits, and exceeding these limits due to the added SDLT could make approval more challenging.

Lenders also conduct a comprehensive affordability assessment to ensure the borrower can manage the increased monthly repayments resulting from a larger mortgage. This assessment considers the borrower’s income, existing debts, and overall financial commitments. A higher loan amount, encompassing SDLT, means a greater financial obligation, which must fit within the lender’s affordability criteria. Some lenders might require a larger deposit if SDLT is included, or they may offer less competitive interest rates.

The increased loan amount means interest will be charged on the SDLT portion over the entire mortgage term. While convenient for upfront cash flow, this long-term financial implication is an important aspect lenders and borrowers consider. The lender approves a single, larger loan that funds both the property purchase and the tax payment, which the solicitor typically handles.

Other Ways to Pay Stamp Duty

Beyond incorporating it into a mortgage, there are several alternative methods to pay Stamp Duty Land Tax. The most common approach involves using personal savings accumulated specifically for the property purchase. This allows the buyer to pay the tax outright, avoiding additional interest charges.

Another option is to receive financial gifts from family members, which can be used towards covering the SDLT liability. While this can be a valuable source of funds, it is important to ensure that such gifts are properly documented, as lenders may require proof that the funds are not a loan. In some instances, buyers might explore other forms of short-term financing, though these typically come with higher interest rates than a mortgage and should be approached with caution.