Property chain nightmare

safetyzone

Hi, I wonder if anyone can advise on my situation.

We are currently in a chain - our flat is to be sold to our neighbour, we've got an offer accepted on a house, and the sellers of this house has also found somewhere to buy, and there ends the chain (so chain of 4 as far as I know).

The sellers have been pushing for an exchange of contract this week (originally we wanted to exchange by mid April). Our buyer can only commit to 5% of the deposit for the exchange, and the solicitors on both sellers have insisted on 10%. We don't have any spare money to cover this (all money tied up to the property).

Is this normal? I've sold in a chain before and normally the deposit from the bottom of the chain is fine for everyone. Is it not a bit unreasonable to demand this in a market where it's difficult enough to sell a property? I know they are entitled to the 10% but what's more important, the deposit or the sale of the property??

I don't know what to do now, I don't want to take a bridging loan and is pulling out the only answer? Is there anything the solicitors can do to agree on something?

QTPie

I thought that 10% deposit was always the norm...

How does your buyer intend to finance his purchase? I.e. what % wil be cash and what % will be mortgage?

QT

silvercar

Deposits below 10% used to be quite common, the buyer giving a lower deposit undertakes to make the deposit upto 10% should they default, but the 5% deposit is accepted as the money available at exchange.

Given that all the deposits just sit in solicitor's client accounts, it doesn't really matter providing the money will be there to complete.

My only concern in this market would be whether the buyer with the 5% deposit really can get a 95% mortgage or the 5% from elsewhere.

safetyzone

QTPie wrote: »

I thought that 10% deposit was always the norm...

How does your buyer intend to finance his purchase? I.e. what % wil be cash and what % will be mortgage?

QT

Buyer has 30% to contribute to the purchase price.

I understand about the 10% but as I said I was in a chain last time I bought and sold and I didn't have to come up with extra money at the exchange of contracts, because the deposit from the FTBs are taken as OK. I'm just shocked that they decided to be so stubborn about the deposit.

If they are not backing down then we will have to pull out of the sale, if that's what they want.

safetyzone

silvercar wrote: »

Deposits below 10% used to be quite common, the buyer giving a lower deposit undertakes to make the deposit upto 10% should they default, but the 5% deposit is accepted as the money available at exchange.

Given that all the deposits just sit in solicitor's client accounts, it doesn't really matter providing the money will be there to complete.

My only concern in this market would be whether the buyer with the 5% deposit really can get a 95% mortgage or the 5% from elsewhere.

Our buyer can only commit 5% right now more because of the timing of the exchange than actual lack of funds - he said that he will have 30% deposit on our flat.

Catti

Ask your Solicitor about a deposit guarantee scheme - these help out where there is no other way to compromise.

safetyzone

Catti wrote: »

Ask your Solicitor about a deposit guarantee scheme - these help out where there is no other way to compromise.

Thanks Catti - I found this being mentioned when googling so will talk to him later.

I'm also feeling a bit annoyed that I seem to be doing all the legal work for the solicitor (this is not the only incident) - despite us paying him lots of money to do the job!

GDB2222

The problem with a 5% deposit is that it's not a lot in this volatile market where it is hard to value a property in the first place.

One scenario: your buyer decides that he has offered too much for your flat and gets cold feet. So he abandons his 5% deposit and makes sure he cannot be traced. Even so, you are still liable to your vendors for the full amount. Basically, you can be wiped out by this. A 10% deposit does not protect you totally, but it does give you a better margin of error.

In case you think this scenario is fanciful, it happened to one of our neighbours during the early 1990s, when house prices crashed. To make matters worse, they were liable for the full agency fee upon exchange of contracts, even though the sale did not complete, so most of their reduced deposit went to the agent.

I would suggest not going ahead unless you can get a full 10% deposit, either in cash or in the form of a deposit guarantee bond that is totally watertight.

QTPie

Or can exchange be delayed until the bottom of the chain can get hold of the full 10%?

QT

silvercar

QTPie wrote: »

Or can exchange be delayed until the bottom of the chain can get hold of the full 10%?

QT

It may be that the buyer is only prepared to withdraw funds once the purchase is definite. It may be that there is a penalty for withdrawals or that there is a tax-free wrap that once removed cannot be replaced eg money held in ISAs or overseas.