Worried: Lack of Immediate 10% Deposit

Let me cut out the irrelevant blurb

DarriHui wrote: »

Hi all, please, please help.[STRIKE] I’m really stressed and need to know what to do next. [/STRIKE]We’re selling a 2 bed flat-[STRIKE] the first sale (at full asking price) collapsed at the last minute before exchange due to the initial buyer’s health deteriorating quite suddenly. We managed to find new buyers but they offered us £25K less asking price. We tried to negotiate a higher price with the buyer but he refused citing a second property abroad and not wanting to pay a higher stamp duty rate. In order to not lose our onwards purchase, [/STRIKE]we accepted but realised we’d have to sell shares to make up for the shortfall of our purchase. However, our shares are not tax free and incur 40% income tax and further NI contributions.
There is no income tax on the sale of shares. Do you mean Capital Gains Tax? You have an £11k pa alloance. Have you calculated the tax?
[STRIKE]Since our last sale fell through out of the blue, we’re reluctant to sell these shares unless we’ve got some degree of certainty that our buyer will proceed and is 100% committed to buying our flat (he seems vague and non-commital atm).[/STRIKE] I wanted to know if exchange could take place using just his deposit for our flat.
As your seller to accept a lower deposit on Exchange.
[STRIKE]This would leave us short of around £15K for our next place but we’d then be able to sell our shares and have the FULL FUNDS upon completion. Does that make sense? Is this even possible? [/STRIKE]Our solicitor has said it might be possible to do things this way but she’ll have to check with our vendor’s solicitor to see if they’re okay with this.
Indeed
How common is this?
relativey common
Am I just panicking for the sake of it?

Yes, but hey! Why not?
This sale and our purchase is all I can think of and it’s driving me insane.

property deals tend to drive people insane.

DarriHui wrote: »

Since our last sale fell through out of the blue, we’re reluctant to sell these shares unless we’ve got some degree of certainty that our buyer will proceed and is 100% committed to buying our flat (he seems vague and non-commital atm). I wanted to know if exchange could take place using just his deposit for our flat.

If the deposit he is paying you at exchange is less than the deposit you need to pay for your onwards purchase at exchange, you have two choices. Either:

1) agree with the vendors that they will accept less than the 'standard' 10% deposit at exchange of contracts, but something meaningful so they know you are not going to walk away from it. For example, if the amount you are getting from your buyer at exchange is still 6 or 7% of the purchase price of the new place, that might still be a large amount of cash and be OK with the seller. However, if the person selling to you is also going to be doing an onwards purchase further up the chain, they may say they need your full 10% if they have to fund 10% of their onwards purchase price and were only budgeting to need your 10% plus some savings they have.

2) sell some other assets to help make up the difference between the 10% your buyer is sending you at exchange and the 10% your seller wants to get from you at exchange. If your sale price has gone down by £25k from what you were expecting, the amount you get at exchange of contracts (assuming 10%) has only gone down by £2.5k. Are you really struggling to find that £2.5k without selling shares, or are the shares only being sold to fund the final completion monies?

It sounds like you are saying you only want to sell these shares if you know the buyer is definitely buying your place. So you could exchange on your sale first, then sell the shares to make up the exchange shortfall, then exchange on your purchase. But if the extra amount you need at the time of exchange (compared to what you thought you were going to need) is only £2.5k (10% of the £25k reduction on your sale price, i.e. your new buyer is paying £25k less for the house so is giving you £2500 less at exchange), then it doesn't seem to be a big deal to just sell those £2.5k worth of shares in the week leading up to proposed exchange date and just cross your fingers that the exchange will actually happen. Then you don't need a break between sale exchange and purchase exchange.

At the end of the day, whether you sell to this person or you sell to some other person who comes along and offers you the same price, you are going to need to sell the shares to be able to afford completion. Shares trade on a market and have a new price every minute of every day. If you complete in a few months time from now, and refuse to sell any shares until you get all the way to completion, the share price could be 30% lower, making a mess of your plans and making your house purchase relatively more expensive compared to your overall wealth. It would make sense to sell some of the shares sooner rather than later, to reduce risk, even if that does involve paying tax / NI. You are going to need to pay the tax/NI in the end if you proceed with this purchase anyway, right?

So, selling £2.5k-worth of them ahead of exchange to cover your exchange shortfall without needing to beg the seller to let you pay a lower deposit than he was expecting from you, seems fine to me.