Buying House - Deposits, Links in a chain etc.

village_life

Hi

we are looking to relocate and as such will be selling our house and buying a new house in a new area....

from reading around it seems the general process is:

Get a Buyer for our house> Find somewhere we like > Offer on new house > get mortgage arranged > exchange/complete etc.....

all very straight forwards!

However given we'll be one of X links in a chain, whats usual around exchange/completion!? - our "deposit" as such will be the equity we've gained on our current house, so have no "cash" deposit to give as such- does this mean we need a bridging loan or is it "normal" to exchange/complete on the same day (recognising the risk)

Any advice would be appreciated....

dexters_mum_2

Hiya
Get your mortgaged arranged if you can before you offer on a house, so you can work out affordability ect and also ensure that if there is a deal on (not sure if there is much around at the moment) you can hopefully tie yourself into that deal until your mortgage offer expires.

Some EA's will advise you to get mortgage arranged through them, go to a whole of market independant mortgage advisor.

You can use your equity to fulfil the deposit on your new house and obviously when your buyers money 'buys' your old house, your money goes through and 'buys' your new house and onwards and upwards. In this case, E&C can be done on the day fairly easily.

Best to talk to your conveyancer if you have any queries as they will know your circumstances when you are in your chain, but you never know, you might be lucky and get a fairly short chain.

Best of luck with it all.
DM

Richard_Webster

You can use your equity to fulfil the deposit on your new house and obviously when your buyers money 'buys' your old house, your money goes through and 'buys' your new house and onwards and upwards. In this case, E&C can be done on the day fairly easily.

Not quite.

There are two different meanings of "deposit". A lot of people think of it as the difference between the purchase price and the mortgage they are getting and so for them if they are selling this is often tied up in their present house. Solicitors use the term to refer to the deposit that is paid on exchange of contracts and you can't use part of the value of your present house for this purpose.

Usually a FTB at the bottom of the chain will have had to save up something as a deposit on exchange on their purchase. This passes up the chain and if it becomes too small a proportion of the purchase price then people in the middle are asked to add what they can to it. It is essentially a matter of negotiation and transactions rarely fall through over issues about deposits. So many people are in this situation and haven't "saved their deposit" as was the custom perhaps 30-40 years ago that it is a standard matter for solicitors to sort out.

If the FTB starts with 10% of his price this can become a smaller proportion of successive transactions. 5% is normally acceptable almost as a matter of routine and we might perhaps get down to say 3% or lower before people get asked to add to it and then the top up might only need to be £1,000-£5,000 depending on the values involved. E.G. £10K might well be accepted on a purchase of £350K.

A lot of the time the test is whether somebody is likely to disappear and be prepared to sacrifice the amount put down. Usually the risk of someone in a chain changing their mind about going ahead at all while people are trying find some more money for a deposit is greater than the likelihood of there being a default after exchange of contracts, which is very rare. (In 38 years in the law I've had experience of 3 or 4 cases where this has happened.) In that case a seller in the chain who was let down would want to have as much as he could. He could sue for the difference between the amount actually received and 10%, but that is expensive and time consuming. However that risk is usually seen as the smaller one than the one caused by delays in exchanging.