Should I use a bridging loan to get stamp duty saving?

The stamp duty holiday is set to come to an end 31 March 2021. The scheme removed stamp duty fees on properties up to £500,000 has helped to keep the housing market vibrant during the Coronavirus pandemic. However, mortgage lenders and surveyors are still catching up on the pent- up demand from when the market stopped during the Spring. The result is those wanting to buy a property now may find they cannot complete their mortgage in time to make their stamp duty saving.

Those needing to complete their mortgage quickly should check with their lender or mortgage broker that they can process their application and valuation quickly enough to meet the stamp duty deadline. If there is the risk this date may not be met, then a faster alternative is a bridging or secured loan. Recent data has shown that the average number of days to complete loans like these was 13 days in October 2020. The buyer can then continue with a remortgage or mortgage and use this to pay-off the bridging loan.

Generally, bridging and secured loans are available up to a maximum loan-to-value of 70% and only for short periods of months rather than years. Borrowers can approach lenders directly, but many will only work through a loans broker. Borrowers may find they have to pay a fee for the services of the loan broker and there may be exit fees if they intend to refinance the loan to a mortgage later. The bridging loan interest rate is also likely to be greater than using a traditional mortgage. Buyers can compare the potential stamp duty saving against the additional interest cost and fees. Ultimately, the ability to move quickly may outweigh the downside of additional costs.

Use our stamp duty calculator to see what stamp duty you will pay before the holiday ends.

Yorkshire Building Society has called for a three-month stamp duty taper. This would be a grace period to allow any property sales agreed and with an approved mortgage before the 31 March 2021 to complete by 30 June 2021. The building society states that by doing this buyers would avoid the average stamp duty cost of £2,400. In addition to helping buyers to claim their saving the building society also believes it could help to reduce spikes in house prices.

Nitesh Patel, Strategic Economist, Yorkshire Building Society said “Since the stamp duty freeze was announced in July, house prices have risen by 3.2%, which is equivalent to an additional £7,685 on an average priced home. Home buyers may be willing to pay more to get a deal over the line quickly with the looming deadline fast approaching.”

The Stamp Duty freeze has also had a positive affect on buyer sentiment. The Building Society Association’s Property Tracker in September 2020 showed that 37% of people agreed now was a good time to buy, compared to only 25% in June 2020.

Compare secured loans and mortgage rates.