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It's easy to forget about stamp duty when factoring the costs of securing a mortgage and purchasing a property. Many first time buyers are surprised when they put their offers in and find that they have to pay an extra few thousand pounds. So what is stamp duty?Stamp duty land tax*, to give it its full name, is a tax paid on the value of the property when you purchase your new home or an additional property. There is a ladder of charges between 1% and 7% of the value of the property.
Stamp duty kicks in at £125,001. At that level and up to £250,000 stamp duty is currently set at 1% of property value. That means that on a £250,000 property you'll be paying £2500 in stamp duty.
Beyond £250,001 you pay 3%, all the way up to £500,000.
From £500,001 to £2 million you pay 4% stamp duty.
Between 1 million and £2 million you pay 5%.
For properties over £2 million you pay 7% stamp duty.
It is therefore very important that you do factor in these costs if you're buying a property over £125,000.
So how can you save the money for stamp duty, especially if you are already saving for a deposit?
Many buyers are fortunate enough to get financial help with stamp duty from their families when buying a home.
Some new homebuyers speak to the developers and are able to get a portion of the stamp duty back as an incentive for the house purchase.
Similarly some builders will pay for white goods and carpets in new homes so that you don't have to do. The savings you make there could go towards your stamp duty costs.
Obviously the most self-sufficient way to cover the cost is through your own personal investment and savings.
If you know about stamp duty ahead of time you should factor it into the costs you will have to pay when you actually buy the house. You could also look at lender incentives when you are choosing your mortgage, as many mortgage lenders will offer products that help you pay your council tax or stamp duty.
Another option is to extend the mortgage amount in order to cover the stamp duty and therefore reduce the amount of deposit that you pay.
Whenever you take out a loan over a prolonged period of time small borrowing increases can add up to a big difference in the amount you pay over the term of the loan. Have this in mind if you are adding stamp duty at your mortgage instead of paying a larger deposit.
The lower the deposit you pay the more risk a lender will associate with you. Therefore you may end up paying more for your mortgage if you fall below a certain threshold by increasing the mortgage to pay for the stamp duty.
Stamp duty is just one of those things that you have to pay. Take a look at the different incentives from companies like TSB and find out if you can benefit from them. Factor in the costs and they won't be a nasty surprise when it comes to completion date.
*Stamp duty is applicable to England and Wales.
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