Rolling Stamp Duty into Mortgage with Help to Buy

tomcusackhuang

My wife and I have reserved a property and are in the process of sorting out the legal and financing side of things. We did some Googling and discovered that it is possible to incorporate your Stamp Duty bill into your mortgage, simply by adding the tax owed onto the mortgage required amount.

We discussed our plan with our mortgage broker today and they have never heard of anything like this being done before (possibly on Help to Buy).

Our plan is this:
Property Price: £600k
Deposit (5%): £30k
Help to Buy (40%): £240k
Mortgage: £330k + £20k stamp (£350k)

---

We're still waiting on receiving for the Authority to Proceed, but we submitted the above numbers and are hoping on a positive outcome. Our mortgages brokers concern is that by requesting £350k, then the percentages will be skewed. e.g. Our deposit should be 5% of £620k (£31k) and therefore outside the upper threshold Help to Buy have in place for London of £600k.

Does anyone have any experience of doing this or are familiar with how Help to Buy do things. Unfortunately we weren't able to get a Stamp Duty incentive like some have been getting recently.

Thrugelmir

Will your mortgage lender advance you £350k against a £600k purchase price given it's HTB? That's the crux of the matter. 
Your deposit can only be 5% of £600k as that's the purchase price not £620k. 
All you are doing in reality is juggling the figures around and ending up with a £10k deposit. 

tomcusackhuang

That's an alarming new way of thinking.. Thank you for your insight. 
We know that in terms of affordability, etc, the lenders have no objection to lending us the money. It boils down to whether Help to Buy will allow the deal to be structured like the above.

kingstreet

You cannot do what you are tying to do. You cannot borrow more than 55% of the purchase price with 40% HTB equity loan and 5% deposit. I don't know who told you you can do this, but they are wrong. The only way you can add the SDLT to the mortgage is by reducing the deposit and you are at the minimum already.

[Deleted User]

kingstreet said:

I don't know who told you you can do this, but they are wrong. 

From a similar thread on the forums a while back it became apparent that the lenders themselves are fueling this misinformation.   For example, Natwest:

How do I pay for Stamp Duty?

It is possible to add stamp duty to your mortgage, but it's important to note that this will incur interest over the duration of the mortgage term, and will also affect your loan to value ratio (LTV).

We know that the LTV bit will knock it out, and in reality all you are doing is putting less deposit down rather than adding it to the mortgage but if i take my mortgage broker hat off, I can see where the confusion is coming from

tomcusackhuang

Thank you for your help and input so far. I really appreciate it. So because HTB have percentage limits, we can't juggle the money around like we would if we were not using the scheme.

As mentioned above, with our £30k deposit, another way of thinking about it is as a £10k deposit and with £20k stamp duty.

However, it appears that it isn't technically impossible to put stamp into your mortgage, but you need a sufficiently high enough deposit, to ensure the percentages are not breached.

Deposit	50k	8.3%
Equity	240k	40%
Mortgage	330k	55%

This way, the 55% mortgage limit is not breached. However, the additional £20k in the deposit is not really a deposit, but actually hiding as a stamp duty payment.

---

Does anyone have any advice as to how we buy this property, given we only have £30k available?

[Deleted User]

There is no way.   You need a minimum of 5% deposit and then extra cash to cover stamp duty plus your legal costs

tomcusackhuang

What about a regular mortgage (not HTB) at 95% LTV? £31k deposit with a £620k mortgage. £600k for mortgage and £20k for stamp.

If the lenders would agree to lend us £589k, would this be a possible route?

Cscott139

tomcusackhuang said:

What about a regular mortgage (not HTB) at 95% LTV? £31k deposit with a £620k mortgage. £600k for mortgage and £20k for stamp.

If the lenders would agree to lend us £589k, would this be a possible route?

No, you need a minimum of 5% deposit regardless.

[Deleted User]

tomcusackhuang said:

What about a regular mortgage (not HTB) at 95% LTV? £31k deposit with a £620k mortgage. £600k for mortgage and £20k for stamp.

If the lenders would agree to lend us £589k, would this be a possible route?

You need to put down a minimum of 5% of the purchase price or valuation.   £589k against £600k property is only less than 2% deposit

amnblog

You are running in totally the wrong direction here Tom.

You cannot borrow funds over and above your agreed mortgage to cover stamp duty land tax, whether you are using H2B or not.