Long completion - interest on deposit

distilled · 2 March 2006 at 1:50PM

Why should paying a deposit on a new home be any different from a deposit on a new car, sofa, kitchen, double glazing etc. etc. etc.?

Of course the vendor gets the deposit! We pay for materials, labour, you don't pay the bulk of the cost until your new home is ready.

Another more important reason is that many buyers personalise their new home with kitchen choice, tile choice etc. Some of which are strange to say the least. It's very easy to walk away from a £250/£500 reservation fee.

5%/10% makes buyers think twice. We often have to heavily discount these properties to compensate for peeps tastes or even worse, put them back to a more saleable spec!

Groundwork_2 · 2 March 2006 at 2:01PM

We had exactly the same issue - put a £23,500 deposit down on a new build flat in March last year and the flat won't be complete until March/April this year. I asked about interest on the £23k to be told that we would be receiving the benefit of a fixed price property increasing in value over a year. All well and good having equity increase but not the actual loss of interest of approx £1,100 (less tax). The increase would be tax free though and higher (hopefully) than putting it in the bank.

Not the answer I wanted and I suppose it is a way of the builder maximising revenues and profits on long builds

distilled · 2 March 2006 at 2:44PM

That's business! No different to any other

mattyh · 2 March 2006 at 3:03PM

nonono, this is getting misinterpreted.

Lets completely forget the fact i'm buying a new build here. I'm buying *a* house off a normal member of the public, we're exchanging contracts soon and completing in October. At exchange I pay my 5/10%. Where does that money go? From what everyone's been saying, the vendor (normal member of public) gets it - which is not true surely. Surely the solicitors holds on to this until completion.... so the *solicitor* is gaining interest on it.

Ian_W · 2 March 2006 at 3:31PM

I think it's as per your previous post with the quote and the link.

Vendors solicitor holds it, doesn't go to vendor in case they pull out, when buyer would get it back [plus could sue for costs]. Vendors solic pays it [and the rest] to vendor on completion, vendor is entitled to any interest earned by the solicitor above a nominal amount - not the buyer. The money belong to the vendor from exchange, so they are due any interest that is earned by a long delay between exchange & completion.

I believe that's correct and hope it answers your query, not really much different from a new build.

mattyh · 2 March 2006 at 4:04PM

Ah that makes some sense. Though it's debatable who the deposit actually belongs to i suppose... the transaction isn't complete until completion, so it's debatable if it belongs to to the vendor i suppose.

zappahey · 2 March 2006 at 4:39PM

Ian_W wrote:

The money belong to the vendor from exchange, so they are due any interest that is earned by a long delay between exchange & completion.

Are you sure about this? I don't know the legal position (though ignorance has never stopped me before!) but I would have thought that the money belongs to the buyer until completion. The contract is that, on a certain date, I will give you a certain amount of money and you will transfer the deeds of a house to me.

From the word "deposit" I would infer that I am depositing a sum of my money with the vendor as an indicator of good faith and, even though the vendor, or his representative, is holding it, it's still my money. The ownership of the money deposited does not transfer to the vendor until completion.

Of course, I could be talking complete bovine excrement.

distilled · 2 March 2006 at 4:44PM

If your vendor is also buying a property, then they too are required to pay a deposit. your deposit is merely passed up the chain.

zappahey · 2 March 2006 at 5:08PM

distilled wrote:

If your vendor is also buying a property, then they too are required to pay a deposit. your deposit is merely passed up the chain.

That may be the net effect but, of the chain, only my vendor has any obligation to return any money to me in the event that things go pear-shaped.

silvercar · 2 March 2006 at 5:14PM

In the event things went pear-shaped he has more than an obilgation to return the deposit to you - if he is at fault. If you are at fault he may be able to keep the deposit.