Does a mortgage cover a mandatory developer deposit?

chiocken · 8 September 2017 at 12:48PM

I'm considering buying a new-build home and the developer has asked for a deposit of 5% on conclusion of missives. The balance is then due upon completion.

The house is built and practically ready to move into (just a choice of flooring to be laid), so completion should be very soon after the conclusion of missives.

What I'd like to know is, after I've paid the developer 5%, will my mortgage lender still base the mortgage amount on the full value of the house, so that I'll effectively get that 5% back as part of the mortgage loan? Or will the deposit affect the amount I will be lent by the mortgage lender, meaning I'm out of pocket by 5% of the house value up front?

I don't really understand why the developer requires the 5% deposit up front if they'll be receiving the balance shortly thereafter, unless perhaps because there's usually a much greater time between conclusion of missives and completion?

kingstreet · 8 September 2017 at 1:14PM

It's part of the purchase price.

The remainder will be made up from the rest of your deposit and the mortgage funds at completion.

In England there can be months between exchange of contracts and completion on a newbuild. Presumably it's the same in Scotland.

davidmcn · 8 September 2017 at 1:54PM

chiocken wrote: »

I don't really understand why the developer requires the 5% deposit up front if they'll be receiving the balance shortly thereafter

Neither do I. It's not normal in Scotland for there to be any deposit (other than the reservation fee), though it is sometimes asked for by developers. See whether it's negotiable. Is it actually going to the developer or being held by the solicitors on joint deposit? The former means it's at risk if the developer goes bust before settlement.

chiocken · 8 September 2017 at 2:13PM

kingstreet wrote: »

It's part of the purchase price.

The remainder will be made up from the rest of your deposit and the mortgage funds at completion.

What I'd like to know, though, is will the mortgage funds include that 5% that I've paid?

Say the price (and valuation) is 100K, I pay the developer 5K deposit. I then pay the lender 15K mortgage deposit. Will the lender then give my solicitor 100K in funds, 95K of which settles the balance with the developer and 5K returns to my bank account?

Or does the lender somehow know that the remaining balance is 95K and only lends that amount (minus the mortgage deposit)?

I have just enough money to cover the developer deposit in my savings, but I'd really like to hold onto those savings.

chiocken · 8 September 2017 at 2:14PM

davidmcn wrote: »

Is it actually going to the developer or being held by the solicitors on joint deposit? The former means it's at risk if the developer goes bust before settlement.

I'm not sure. All they've said is they require the deposit. I'll certainly ask, but the advisor I'm dealing with is on holiday at the moment.

kingstreet · 8 September 2017 at 2:17PM

chiocken wrote: »

What I'd like to know, though, is will the mortgage funds include that 5% that I've paid?

Say the price (and valuation) is 100K, I pay the developer 5K deposit. I then pay the lender 15K mortgage deposit. Will the lender then give my solicitor 100K in funds, 95K of which settles the balance with the developer and 5K returns to my bank account?

Or does the lender somehow know that the remaining balance is 95K and only lends that amount (minus the mortgage deposit)?

I have just enough money to cover the developer deposit in my savings, but I'd really like to hold onto those savings.

Pay the lender £15k? What makes you think you do that?

It's part of 100% of the purchase money. It's not 5% on top of the purchase price. You pay your deposit to your solicitor who adds that to the mortgage you have arranged and he pays over the purchase price to the vendor's solcitor.

kingstreet · 8 September 2017 at 2:20PM

If you are buying for £100,000;-

£10,000 deposit (half paid to your solicitor for exchange of contracts or similar- it sounds like builder works like English system with 5% paid to them)

£90,000 mortgage.

The remaining £5,000 would be paid to your solicitor ahead of completion.

chiocken · 8 September 2017 at 2:35PM

kingstreet wrote: »

Pay the lender £15k? What makes you think you do that?

Sorry, I meant to my solicitor.

So my total deposit is still 15K? It's just that one third of that is paid earlier than usual?

kingstreet wrote: »

If you are buying for £100,000;-

£10,000 deposit (half paid to your solicitor for exchange of contracts or similar- it sounds like builder works like English system with 5% paid to them)

£90,000 mortgage.

The remaining £5,000 would be paid to your solicitor ahead of completion.

Did you mean £85K mortgage here?

kingstreet · 8 September 2017 at 3:37PM

It was just an example to show whatever you pay at any time comes off the final completion bill.

Does a mortgage cover a mandatory developer deposit?

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