Barclays offers to pay your stamp duty, but would you do better to pick up the tab and get a lower-rate mortgage?
Homebuyers could get their stamp duty paid with a new mortgage from Barclays.
The high street lender is offering to pay borrowers up to £2,500 in cashback via its Homebuyer Cashback Mortgage, which is fee-free and fixed for five years at 2.69 per cent.
This amount of cashback would completely cover the stamp duty bill on a £250,000 home.
Homebuyers could get their stamp duty paid in full with a new mortgage from Barclays
There are different amounts of cashback on offer under the scheme. Barclays is offering to pay £1,250 in cashback to borrowers who are buying a property costing between £100,000 and £150,000.
And for those buying a property above this amount – to a top limit of £500,000 – it is offering to pay £2,500 in cashback.
But is this a good deal, or would you be better off opting for a different mortgage and paying the stamp duty yourself?
For this Barclays deal to be attractive, the saving on stamp duty would have to outweigh any saving offered by a cheaper mortgage rate elsewhere.
There are cheaper mortgage rates available than the 2.69 per cent on the Barclays product, which is fixed for five years and comes with no arrangement fee.
However, some of those cheaper deals require you to have a larger deposit, as much as 40 or 50 per cent, while the Barclays deal only requires borrowers to have a 20 per cent deposit.
Ray Boulger, of mortgage brokers John Charcol, explains: ‘The Barclays deal is unlikely to be good value to anyone with a deposit of at least 25 per cent as that’s when much cheaper rates are available elsewhere.
‘Rates are much higher for those with a smaller deposit and so this deal could in theory be helpful for those in that category – but with five year fixed rates as low as 2.14 per cent available from other lenders with a 20 per cent deposit, most borrowers will find better value by forgoing the cashback.
‘The sweet spots are only going to provide good value for people who have a deposit of between 20 per cent and 24 per cent and are buying a property at just over the £150,000 limit.’
The Barclays product does not apply to buy-to-let properties or Help to Buy. However, it does apply to shared ownership schemes and shared equity.
The higher level of cashback being offered by Barclays – at £2,500 as opposed to £1,250 – only cuts in if the value of the property being bought is above £150,000.
With this in mind, Mr Boulger suggests it would be worth paying an extra £6 if a property has an asking price of £149,995 in order to obtain the extra £1,250 cashback being offered on more expensive properties.
For the Barclays deal to be attractive, the saving on stamp duty would have to outweigh any saving offered by a cheaper mortgage rate
Take the cashback or opt for a cheaper rate?
Mr Boulger crunched some numbers to determine if borrowers could save money with the Barclays deal, covering various price points included in the deal, from the bottom of the scale at £100,000 to the top at £500,000.
He also considered how much the deal costs if you buy a property worth £150,000.01, which is the point at which Barclays offers a higher level of cashback.
The table below compares the Barclays mortgages with alternative deals offering a more competitive rate, including one from the lender Platform that comes with a rate of 2.14 per cent. It also includes Barclays non-cashback mortgages that come with a lower rate, as a point of comparison.
It looks at the cost of interest over the five-year period, minus any cashback on offer.
For example, a borrower pays £47,337 for the Barclays cashback option on a property costing £500,000 with a £400,000 mortgage, while they pay almost £7,000 less for the Platform deal.
Someone purchasing a £250,000 home with a £200,000 mortgage pays £22,419 with Barclays but £20,717 with Accord.
Indeed, there are no scenarios in Mr Boulger’s calculations where a borrower would be better off with the Barclays deal. Instead, they would save money by taking a cheaper rate elsewhere and paying the stamp duty themselves.
Barclays is keen to point out, however, that their products offer the highest cashback in the market, and come with free valuations and no application fee.
It suggested that an average customer would look to shop around once the initial fixed period of five years has come to an end, claiming: ‘Customers tend to consider both the effective cost over the initial fixed term (in this case five years), as well as cash flow implication when choosing a product, rather than the full 25 year term.’
It concluded: ‘Essentially we believe these products offer fantastic value for customers and we have not claimed them to the cheapest.’
You can compare the cost of rival deals using our True cost mortgage calculator