Can you add stamp duty to a mortgage?

Stamp duty cannot usually be added to a mortgage as a separate loan item, because lenders lend against the property's price or value, not against the buyer's costs. In practice, some buyers cover it by borrowing a larger amount and putting down a smaller deposit, which leaves cash free to pay the tax at completion.

Whether that is possible depends on the lender's maximum loan-to-value, affordability checks and the buyer's own funds. A conveyancer needs the tax in cleared funds before completion, so the source of the money has to be clear well before the day.

Borrowing more to free cash for stamp duty raises the loan-to-value, the size of the mortgage as a share of the property's value. A higher loan-to-value can mean a higher interest rate band, fewer products and stricter affordability checks, and it leaves less equity if property prices fall during the early years of the mortgage.

Moving into a higher loan-to-value band can cost more over the term than the stamp duty itself, so buyers often compare both routes before deciding.

Money borrowed to cover stamp duty is repaid with interest over the mortgage term. Spread over many years, the interest can add a significant amount to the original tax bill, especially on a long term or if rates rise. Overpaying the mortgage later can reduce the interest, within any overpayment limits set by the lender.

The total cost depends on the rate, the term and how long the extra borrowing is kept, so it is worth working out before committing.

Most buyers pay stamp duty from savings, alongside the deposit and fees. Others use a gift from family, proceeds from selling their previous home or, for some, money released by remortgaging another property. Lenders ask where the money for the deposit and costs comes from, and gifted money usually needs a letter from the person giving it.

First-time buyers may pay less or no stamp duty, which changes how much cash is needed. The stamp duty guide explains who pays, the reliefs and the higher rates for additional homes.

Some buyers pay stamp duty from savings and later remortgage to release equity and rebuild those savings. This depends on the property's value, the new loan-to-value, early repayment charges on the existing deal and the buyer's ability to pass affordability checks at the time of the remortgage.

Releasing equity raises the mortgage and the interest paid over time, in the same way as borrowing more at the start.

Planning for stamp duty early helps avoid problems close to completion. Buyers can work out the likely tax as soon as they have a price in mind, check whether a relief or a surcharge applies, and set the money aside with the deposit. Conveyancers usually confirm the figure in their completion statement.

A stamp duty calculator gives an estimate for any price, including first-time buyer relief and the higher rates for additional homes.