The Most Important Facts You should Know about Stamp Duty when Applying for a Mortgage
Applying for a mortgage involves not only the cost of the actual property itself – there are other costs involved, such as mortgage fees and even the cost of moving, as you may already know. And if you are planning to buy property that has a value of over £125000, you would have to contend with Stamp Duty Land Tax, or SDLT. So what exactly is it, and how much would it really cost? Here are the most important facts you should know about stamp duty when applying for a mortgage for property worth over £125000.
You are bound to settle stamp duty if you are planning to purchase a residential piece of property or land that is worth more than £125000. Stamp duty is applied not only to freehold, but to leasehold pieces of property as well, and this holds whether you are purchasing the property outright or through a mortgage.
Image courtesy of hywards/FreeDigitalPhotos.net
The cost of stamp duty
What you need to be aware of is that there are a number of ‘rate levels’ or ‘bands’ for stamp duty land tax. For instance, if you purchase a piece of property that is worth £275000, then the SDLT will be calculated like this: 0 percent on the initial £125000, 2 percent on the following £125000 (for a total of £2500), and 5 percent on the final or closing £25000, which is a total of £1250. The total stamp duty will then be £3750.
If your property’s worth is between £125001 and £250000, the stamp duty is 2 percent. If the property’s value is between £250001 and £925000, the stamp duty falls at 5 percent. For property worth between £925001 and £1.5 million, the stamp duty will be 10 percent. For properties worth more than £1.5 million, the stamp duty is 12 percent.
If you’re buying a second home
The stamp duty is also different if you are planning to purchase a second home. Aside from the current rate on the band, you also have to pay an additional 3 percent. This rate is applied to properties that are purchased for more than £40,000. It does not, however, apply to other types of residences such as houseboats, mobile homes, or caravans.
Also, if you purchase a new residence but your old residence has not yet been sold, you will still have to pay stamp duty’s higher rates as you will now have two pieces of property. The good news is that you can ask for a refund if you are able to sell your old residence within the next three years.
If you are unsure about the rates or if you have other concerns, it always pays to speak with an expert. Specialists in Bristol mortgages online such as Open Vision Finance have a bevy of mortgage advisors who are more than willing to answer whatever questions you may have.