The true cost of stamp duty is two thirds greater than the tax itself because it obliges buyers to spend far more than they realise. 

A new analysis by the Coventry Building Society showed that by having to pay the tax rather than using the cash to fund a larger deposit, many homebuyers need to borrow extra and end up paying thousands more in interest over the term of their mortgage.

The lender says a buyer borrowing £5,000 more to cover the Stamp Duty on their £350,000 home would pay £8,346 over the term of a 25-year mortgage – an increase of 66.9 per cent, assuming today’s mortgage rate of 4.51 per cent.

Landlords or anyone buying a second property – which includes those buying a new home while still named on the family home following a split – face higher Stamp Duty costs to begin with, as they have to pay a three per cent surcharge.

Jonathan Stinton, head of mortgage relations at Coventry Building Society, says: “After they get their keys, people have a two-week grace period to cough up thousands of pounds in Stamp Duty. If they don’t have that lying around the chances are they’ll need to eat into their deposit to cover the bill, meaning the amount they pay in real terms shoots up by thousands.

“Stamp Duty is already considered a burden to homebuyers, but this shows it’s a more damaging liability than people perhaps realise. It adds to the long list of reasons why Stamp Duty should be top of the Chancellor’s priorities this Budget.

“Not only does it put a lag on the market, it disincentivises downsizers, stifles the private rental sector by imposing a three per cernt surcharge, and it’s costing many homebuyers thousands more than they realise.

“As a basic rule of thumb, buyers taking a 25-year mortgage at a rate of 4.51 per cent will pay around 67 per cent more if they need to borrow extra for their tax bill – and this will be even higher if they take their mortgage over a longer term. The extra borrowing can also make a difference to the rate they pay, as people with larger deposits have a lower loan to value so typically get a better rate of interest.”