A major lender has offered to pay first-time buyers’ stamp duty – in exchange for a higher rate of mortgage interest.
Many mortgage lenders offer “cashback” to buyers (usually a small sum released when the mortgage deal completes), but Barclays’ new mortgage goes further.
Here the cashback element is designed to pay the buyer’s stamp duty on properties worth up to £250,000.
High stamp duty is a barrier to many first-time buyers who spend years saving up a house deposit and struggle to raise the extra amount to pay the upfront tax.
Seven in 10 buyers are now affected by the tax, which applies on to properties costing more than £125,000, and the cost of paying it on the average property is now £1,603.
The mortgage is available for first-time buyers or home movers with a 20pc deposit, and comes at a rate of 2.69pc fixed for five years.
Buyers who are purchasing a property worth £100,000 to £150,000 will receive £1,250 cashback, and buyers purchasing a property worth £150,001 to £500,000 will receive £2,500.
Stamp duty on a £250,000 property is £2,500, meaning that buyers of property worth more than this will have to stump up part of the cost themselves.
However, buyers of cheaper properties will receive extra cash on top of their stamp duty costs. Stamp duty on a £150,000 property is £500.
Mortgages are arranged before completion, but stamp duty can be paid up to 30 days afterwards, allowing buyers to use their cashback to pay the tax cost.
Other banks pay cashback on mortgages – but none currently pay more than £1,000 to a buyer with this deposit size.
The rate is considerably higher than the best-buy mortgages available to buyers with 20pc deposits, meaning the mortgage is most appropriate for buyers who have no way of paying the stamp duty up front.
The deal is likely to be better value where the buyer is borrowing a lower amount, because the stamp duty will be covered or more than covered, and the higher rate is paid on a smaller loan.
Ray Boulger, of mortgage broker John Charcol, said: “The more the property costs, the better value it is for Barclays and the worse value it is for the borrower.
“If you’re buying a property worth half a million, it’s really bad value because you’re paying the extra interest but getting the same cashback,” he said.
The deal is best for those borrowing just over £150,000, because they get significantly more cashback than those borrowing between £100,000 and £150,000.
Mr Boulger said buyers could even ask sellers to charge slightly more so they qualify for extra cashback.
He also suggested that borrowers who are struggling to pay the stamp duty could take on a slightly larger mortgage and use some of their cash to pay the tax instead, provided they can afford it.
Five-year fixed rate mortgages are available for buyers with a 15pc deposit at 2.19pc with a £1,249 fee, from Platform, or fee-free at 2.44pc from HSBC.
The cheapest five-year fixed rate available is HSBC’s loan at 2.09pc, with a fee of £1,196. Including fees, buyers would pay £862 a month if they borrowed £200,000 to buy a £250,000 house, which includes the fees.
This would cost £51,696 over the five-year fixed term.
The Barclays mortgage would cost £916 a month, and £54,969 over the five-year fixed term.
So assuming the Barclays borrower used the £2,500 upfront payment for stamp duty, the HSBC borrower would be £773 better-off over five years.
For a larger loan, of £400,000, with a £100,000 deposit, the Barclays mortgage would cost £109,938 over five years while the cheaper HSBC rate would cost £103,086, including fees.
Stamp duty on a £500,000 property is £15,000. Barclays would pay for £2,500 of their customer’s loan, but they would have to pay the other £12,500, meaning that they would be £4,352 worse off including stamp duty at the end of the five-year term than the HSBC customer.
According to Mr Boulger, even one of Barclays’ other rates offers better value for someone borrowing £400,000. Their five-year fix at 2.45pc with no cashback would leave a borrower £1,925 better off over five years.
Buyers who want a cashback mortgage could also consider the West Brom’s two-year discount at 2.69pc, with £1,000 cashback.
The Post Office also has a five-year fixed rate at 3.14pc with £1,000 cashback. Both are available to buyers with at least a 10pc deposit.