Questions from Buyers Solicitor - Will we accept 5% deposit?

clairey22

Hi everyone,

I have had through a list of questions from our buyers solicitor. One of these is:

Will the seller please accept a 5% deposit?

Please can anyone let me know the pros and cons for this? I have no idea.

Thanks
Clairey

googler

clairey22 wrote: »

Hi everyone,

I have had through a list of questions from our buyers solicitor. One of these is:

Will the seller please accept a 5% deposit?

Please can anyone let me know the pros and cons for this? I have no idea.

Ask your solicitor.

Leory

It is possible that they are talking about a 'gifted deposit'.

If it isnt this then ignore the below!
The mortgage company will require a minimum 10% deposit, but the buyers may not have it.
The buyers pay 5% deposit and you pay the other 5% - the mortgage company will still get 10%, though through veiled means.

edit - but as googler says - your solicitor will know for sure!

WestonDave

Your solicitor should advise on this - failing to advise you may mean you have grounds to claim against them if it goes wrong because they will not have advised you of the risks.

If you only get 5% deposit and the buyer fails to complete you will only have 5% in hand as a deposit for them to forfeit to you as a penalty for non completion. They may have to pay over the other 5% but you'd have to chase them for it and may not get it.

However their funds for their deposit may be largely tied up as equity in their current property - lets say their 30% equity in their current home equates to 10% of your selling price. They have enough on sale to act as a deposit for mortage purposes but as they will only get 10% deposit they will be 2/3rds short on what they need to give you. Potentially refusing could be a show stopper unless they can borrow bridging funds.

clairey22

Thanks for the advice guys, I think I will ask the solicitor then (the questions came via my solicitor and i'm currently writing the letter back to her).

I know that the buyers are buying our house as a Buy to Let. Our house is 215K and they have funds in the bank from another house sale which they said was 200K so not sure why they only want to pay 5% deposit if they have those funds already.

MacMickster

clairey22 wrote: »

Thanks for the advice guys, I think I will ask the solicitor then (the questions came via my solicitor and i'm currently writing the letter back to her).

I know that the buyers are buying our house as a Buy to Let. Our house is 215K and they have funds in the bank from another house sale which they said was 200K so not sure why they only want to pay 5% deposit if they have those funds already.

This would make me worry whether they have the funds to complete. Ask your solicitor what reason was given for the request and be cautious.

BornAtTheRightTime

it isn't necessarily anything underhand going on.

Our solictor told us he routinely asks if a 5% deposit is acceptable on larger purchases so that we would continue to accrued some interest in the 2 months between exchange and completion. Our solicitor said it didn't have to be 10% - but needed to be enough to prove to our vendors that it was money we wouldn't want to walk away from. Our vendors settled on 7.5% which was around 45k from memory.

clairey22

Thanks everyone, solicitor is going to ask why its only 5% and will let me know and we'll go from there!

GAH

5% isn't unusual at all, i have paid 5% on my last two purchases. I wouldn't worry too much about it, it is extremely extremely rare that somebody doesn't complete after they have exchanged.

GDB2222

Clairey, if you are buying elsewhere, how mcuh deposit will you be paying and do you most of it as cash?

Richard_Webster

it isn't necessarily anything underhand going on.

Our solictor told us he routinely asks if a 5% deposit is acceptable on larger purchases so that we would continue to accrued some interest in the 2 months between exchange and completion. Our solicitor said it didn't have to be 10% - but needed to be enough to prove to our vendors that it was money we wouldn't want to walk away from. Our vendors settled on 7.5% which was around 45k from memory.

I agree.

Two points:
1. In the days of 95% mortgages 5% deposits on exchange were very common.
2. Even nowadays it can still happen. A is buying flat for £100K from B and has £10K deposit. B is buying house for £150K from C and is relying on larger mortgage to buy it and has no spare cash of his own.
B's solicitors ask if a £10K deposit is acceptable. C is buying for £200K and also has no spare cash on exchange. D ends up accepting a £10K =5% deposit. This and variations on it are very common scenarios.

Some solicitors routinely ask this question at an early stage. My standard answer is:

The sellers will be advised to accept the maximum deposit reasonably available given the usual constraints related to the size of mortgages and any deposit being provided from lower down in any chain. Please inform us if the deposit is expected to be unreasonably small.