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  • FIRST POST
    • FirstTimeBuyer__
    • By FirstTimeBuyer__ 5th Jan 18, 10:46 AM
    • 3Posts
    • 0Thanks
    FirstTimeBuyer__
    Buying a House - Deposit question
    • #1
    • 5th Jan 18, 10:46 AM
    Buying a House - Deposit question 5th Jan 18 at 10:46 AM
    Hi all,

    Myself and my partner are looking at the possibility of buying our first house together. We have some savings which we were planning on using towards a deposit on our mortgage. After doing some research, I can across the Exchange of Contracts, where 10% of the value of the house needs to be paid to the seller. This has left me somewhat confused.

    Hypothetical numbers here, to explain the situation:

    We are wanting to buy a house for £100,000. We have saved £15,000 and intended to get an 85% LTV mortgage (putting down £15,000 and borrowing £85,000). I have since heard about the exchange of contracts, which requires us to transfer 10% of the property value (£10,000) to the seller. From what I understand, this means we would only have £5,000 left towards our mortgage deposit. Due to this, we could only get a 95% LTV mortgage, which would likely incur significantly higher interest costs.

    Am I reading into this correctly? For us to get an 85% LTV, would we need to have £25,000 saved (£10,000 to the seller at Exchange of Contracts and £15,000 for mortgage deposit)?

    I feel that this makes it very hard to get onto the property ladder, and hope that I've misunderstood! Does the exchange of contracts payment count towards the reduction in LTV?

    I hope all of this makes sense. If not, please let me know where I need to elaborate and I'll be happy to do so.

    I'm completely new to this, so please bear with me! What may seem obvious to you, most probably isn't to me. Thanks!
Page 1
    • Lucky Duck
    • By Lucky Duck 5th Jan 18, 11:09 AM
    • 152 Posts
    • 85 Thanks
    Lucky Duck
    • #2
    • 5th Jan 18, 11:09 AM
    • #2
    • 5th Jan 18, 11:09 AM
    The deposit paid on exchange of contracts is not lost (it will be included in the completion statement produced by your solicitor) so in your example the deposit for mortgage LTV purposes will be £10k + £5k = £15k
    • xsor
    • By xsor 5th Jan 18, 11:24 AM
    • 72 Posts
    • 22 Thanks
    xsor
    • #3
    • 5th Jan 18, 11:24 AM
    • #3
    • 5th Jan 18, 11:24 AM
    Remember you will probably need to pay solicitors, surveys etc
    • glentoran99
    • By glentoran99 5th Jan 18, 11:27 AM
    • 4,996 Posts
    • 4,010 Thanks
    glentoran99
    • #4
    • 5th Jan 18, 11:27 AM
    • #4
    • 5th Jan 18, 11:27 AM
    Hi all,

    Myself and my partner are looking at the possibility of buying our first house together. We have some savings which we were planning on using towards a deposit on our mortgage. After doing some research, I can across the Exchange of Contracts, where 10% of the value of the house needs to be paid to the seller. This has left me somewhat confused.

    Hypothetical numbers here, to explain the situation:

    We are wanting to buy a house for £100,000. We have saved £15,000 and intended to get an 85% LTV mortgage (putting down £15,000 and borrowing £85,000). I have since heard about the exchange of contracts, which requires us to transfer 10% of the property value (£10,000) to the seller. From what I understand, this means we would only have £5,000 left towards our mortgage deposit. Due to this, we could only get a 95% LTV mortgage, which would likely incur significantly higher interest costs.

    Am I reading into this correctly? For us to get an 85% LTV, would we need to have £25,000 saved (£10,000 to the seller at Exchange of Contracts and £15,000 for mortgage deposit)?

    I feel that this makes it very hard to get onto the property ladder, and hope that I've misunderstood! Does the exchange of contracts payment count towards the reduction in LTV?

    I hope all of this makes sense. If not, please let me know where I need to elaborate and I'll be happy to do so.

    I'm completely new to this, so please bear with me! What may seem obvious to you, most probably isn't to me. Thanks!
    Originally posted by FirstTimeBuyer__

    that is your mortgage deposit
    • aneary
    • By aneary 5th Jan 18, 11:39 AM
    • 866 Posts
    • 792 Thanks
    aneary
    • #5
    • 5th Jan 18, 11:39 AM
    • #5
    • 5th Jan 18, 11:39 AM
    Essentially your 10% deposit (£10k), the remainder of your deposit (5k) and the money from the mortgage company (85K) gets put together and pay for the house.

    It's just that the 10% deposit is paid earlier in case you pull out inbetween exchange and completion.
    Last edited by aneary; 05-01-2018 at 11:44 AM.
    • PasturesNew
    • By PasturesNew 5th Jan 18, 11:43 AM
    • 61,313 Posts
    • 358,958 Thanks
    PasturesNew
    • #6
    • 5th Jan 18, 11:43 AM
    • #6
    • 5th Jan 18, 11:43 AM
    As the others have said, there's only ONE deposit.

    You give £10k to your solicitor for the seller ...
    You give £5k to your solicitor towards the price to hold onto.
    The solicitor requests the £85k from the lender.
    On completion day the solicitor forwards £90k to the seller's solicitor as they've already passed the £10k deposit on.

    You don't pass your deposit to your lender. Your solicitor receives the funds agreed from the lender and they add that to all the money you've given them.
    • FirstTimeBuyer__
    • By FirstTimeBuyer__ 5th Jan 18, 11:48 AM
    • 3 Posts
    • 0 Thanks
    FirstTimeBuyer__
    • #7
    • 5th Jan 18, 11:48 AM
    • #7
    • 5th Jan 18, 11:48 AM
    Thanks all. I'm glad to hear that I had the wrong end of the stick!

    We've taken into account solicitors fees etc., so everything is ok on that front. Just needed to verify how the deposit system works.

    Thanks again!
    • juniordoc
    • By juniordoc 5th Jan 18, 12:13 PM
    • 260 Posts
    • 230 Thanks
    juniordoc
    • #8
    • 5th Jan 18, 12:13 PM
    • #8
    • 5th Jan 18, 12:13 PM
    Good luck! If you've not found a house to buy yet then you may be able to save up to a 20% deposit and then better mortgage rates will be available to you.
    The process of purchasing the house takes so long that it gives you a bit more time to save even after you've started the purchase process.
    • FirstTimeBuyer__
    • By FirstTimeBuyer__ 5th Jan 18, 1:58 PM
    • 3 Posts
    • 0 Thanks
    FirstTimeBuyer__
    • #9
    • 5th Jan 18, 1:58 PM
    • #9
    • 5th Jan 18, 1:58 PM
    Good luck! If you've not found a house to buy yet then you may be able to save up to a 20% deposit and then better mortgage rates will be available to you.
    The process of purchasing the house takes so long that it gives you a bit more time to save even after you've started the purchase process.
    Originally posted by juniordoc
    Thanks! We are currently renting, but our landlord is looking to sell the house. We've saved up enough for at least a 15% deposit, possibly 20% depending on the sale price, so I think we should have a few mortgage options available. Any advice for purchasing from the landlord that we're currently renting from?
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