Headline news today is a new Barclays Bank mortgage which offers a cash element which effectively covers stamp duty purchase tax on properties worth up to £250,000. The idea of cashback for mortgages is not new but the level of cashback offered by Barclays is certainly touching on new ground. So, why would Barclays offer to pay your stamp duty?
Stamp duty can deter first-time buyers
There is no doubt that the ever-growing cost of purchasing a property is impacting many first-time buyers. We have seen a number of potential first-time buyers falling by the wayside simply because they could not afford the additional stamp duty. The situation is most acute at the more expensive end of the market but any additional funds required to complete a purchase can scupper a deal. When you bear in mind that stamp duty on a £250,000 property is £2500 although it is just £500 on a £150,000 property, you can start to see why some people may struggle.
Cashback from Barclays
The deal from Barclays will give customers £1250 cashback on property purchases worth between £100,000 and £150,000. The figure rises to £2500 for property’s valued between £150,001 and £500,000 – although it is worth bearing in mind the £2500 figure would not cover the full stamp duty on a property worth more than £250,000. Purchases towards the higher end of the market would leave buyers having to cover additional stamp duty charges even after taking into account the cashback element.
So, why would Barclays offer this deal?
The simple fact is that this particular deal demands a 20% deposit with a fixed interest rate of 2.69% for the first five years. This may not seem overly expensive but compared to traditional mortgages, with a 15% deposit, rates of 2.19% up to around 2.44% are readily available on the market. So, while the additional cashback element may allow you to cover stamp duty this does come at a price which can soon begin to mount up over the years. However, there is nothing wrong with this deal because it is upfront, the figures are there for everybody to see and it will assist some who are struggling to cover stamp duty payments.
Are there any options?
For those struggling to cover stamp duty payments there are some options although they may not be available to everybody. One option would be to take out a slightly larger mortgage and use some of this cash to pay the stamp duty tax. However, it does effectively come down to whether the underlying buyers can actually afford the property before they begin looking at additional funding options.
Competition is building
It is unlikely that this deal from Barclays will not be replicated by other mainstream mortgage lenders who will also want a slice of the action. The fact that competition is beginning to build again in the UK mortgage market is something the regulators will watch very closely because there could be implications further down the line. The UK authorities have already tightened mortgage criteria and it will be interesting to see how close to the line the UK mortgage sector is willing to go.