The “true cost” of stamp duty could be 67 per cent higher than the tax bill itself, research from Coventry Building Society has revealed.
The lender explained that stamp duty is a tax which must be paid, at various percentages, within 14 days of anyone buying a home.
Its calculations showed 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.
This represents an increase of 66.9 per cent.
Coventry Building Society head of mortgage relations, Johnathan Stinton, 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.”
This true cost of stamp duty was found to rise with the price of the house purchased, with a £300,000 house with a £2,500 stamp duty bill producing a true cost of £4,173.
Meanwhile, a £1mn house with a bill of £41,250 would have a true cost of £68,856.
The building society pointed out that landlords or anyone buying a second property, such as those buying a new home while still named on the family home following a split, face higher stamp duty costs to begin with, as they have to pay a 3 per cent surcharge.
Stinton added this shows 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 3 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.”
tom.dunstan@ft.com
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