Deposit at exchange of contracts

garrunt

Hi,

My girlfriend and I both own flats. Both have a good amount of equity. We want to buy a house now. The plan is to sell at least one flat to fund this new purchase. We want to sell both rather than get involved in buy to let. So the second one might sit there waiting to sell after completion on the house.

But the issue is that nearly all our money is in the equity in our flats. I cannot fathom how we can come up with a deposit at exchange which I assume has to be in cash.

Do we really have to remortgage the second flat to release some equity for this cash deposit ?

Is the only other option some sort of bridging loan for the deposit amount between exchange and completion ?

Is there any standard % deposit that we could be asked for. I know we can use the deposit on the flat we sell to cover some of the deposit on the new house...but it would fall tens of thousands short.

Hope someone can help. We can't be the only people to have had this problem !

Senior_Paper_Monitor

Deposit normally 10% but negotiable.

Secured loan on balance of either/both flats (up to 75%LTV total secured) ?

Hugely high risk option through - what happens if you can't sell ?

garrunt

Senior_Paper_Monitor wrote: »

Deposit normally 10% but negotiable.

Secured loan on balance of either/both flats (up to 75%LTV total secured) ?

Hugely high risk option through - what happens if you can't sell ?

Thanks for the reply. I think you are saying we could get a secured loan on the flat that we had not yet sold at the time of the exchange on the new house,.. in order to fund the deposit that we need for the house transaction.

When you say it would be higher risk, do you just mean that we might not be able to repay the secured loan in time if the 2nd flat did not sell quickly ? If so then I guess one answer would be to then bite the bullet and remortgage that second flat to pay off the secured loan. Do you agree ? I suppose if thats the case then remortgaing the 2nd flat might be cheaper in the first place !

I just can't believe we would need to do any of this for the sake of this deposit. We have total equity in our flats equal to more than 50% of the value of the house we are buying. But,..it seems we need to have tens of thousands sitting around in cash too for this deposit !?

Do you have any feel for what the interest rate might be on a secured loan as you suggest.

Thanks again.

Senior_Paper_Monitor

The risk is that you can't sell one/both flats therefore can't complete on mortgage and therefore lose the deposit/costs.

Secured loan perhaps 11% at best (probably no set-up fees), 1 months interest penalty of termination with months notice so you write it for medium term and pay off when you chose - assuming LTV, credit rating etc all stack up.

Thrugelmir

garrunt wrote: »

I just can't believe we would need to do any of this for the sake of this deposit. We have total equity in our flats equal to more than 50% of the value of the house we are buying. But,..it seems we need to have tens of thousands sitting around in cash too for this deposit !?

If you've 50% equity of the house between the properties. Then sell the flat first which releases the 10% deposit.

garrunt

Thrugelmir wrote: »

If you've 50% equity of the house between the properties. Then sell the flat first which releases the 10% deposit.

That would be fine. In fact ideal. But I think there's a fairly low chance we will have sold both flats in time for an exchange on the new house. The seller of the house would surely lose patience if we had to sell both before we could close the deal.

garrunt

Senior_Paper_Monitor wrote: »

The risk is that you can't sell one/both flats therefore can't complete on mortgage and therefore lose the deposit/costs.

Secured loan perhaps 11% at best (probably no set-up fees), 1 months interest penalty of termination with months notice so you write it for medium term and pay off when you chose - assuming LTV, credit rating etc all stack up.

Thanks. But how is that risk any different to losing a regular cash deposit if the sale falls through on the more conventional basis ? In other words, wherever someone is upsizing are they not at risk of losing some of their deposit if the sale of their smaller property falls through,..whether deposit for the bigger property is paid in cash or not ?

11% - is that annual ?...so just less than 1% per month ? plus the early repayment penalty you mentoned ?

Thrugelmir

garrunt wrote: »

That would be fine. In fact ideal. But I think there's a fairly low chance we will have sold both flats in time for an exchange on the new house. The seller of the house would surely lose patience if we had to sell both before we could close the deal.

We were in a similar situation as you a few years back. My property sold first. Pushed completion through as there was no onward chain.

Then sold second property. Which enabled us to be proceedable on our now home.

Took 7 and half months in the end to complete the exercise.

garrunt

Thrugelmir wrote: »

We were in a similar situation as you a few years back. My property sold first. Pushed completion through as there was no onward chain.

Then sold second property. Which enabled us to be proceedable on our now home.

Took 7 and half months in the end to complete the exercise.

And did you have to do it this way round just to get over the hurdle of not having a a deposit available in cash ?...we have enough equity to achieve the purchase with just one flat sale....we just don't have the deposit in the form of cash.

garrunt

I think I have the answer. I can draw back overpayments I have made on my flat at a weeks notice. There's more than enough to cover the likely deposit for the new house purchase. To my mind it doesn't matter if my flat or hers is the one that sells at the time of the new purchase,..provided I draw enough back from my mortgage for the depsosit before exchange.

Please tell me if anyone thinks I've got this wrong !! :-)

Thrugelmir

garrunt wrote: »

And did you have to do it this way round just to get over the hurdle of not having a a deposit available in cash ?...we have enough equity to achieve the purchase with just one flat sale....we just don't have the deposit in the form of cash.

We had the deposit available in cash without selling either property.

Was back in 2007. We considered property to be OTT in price. So were happy not to expose ourselves to unnecessary risk or cost. House moving is stressful at the best of times without complicating the situation.