Selling and Buying - deposit at exchange?

prutter

Morning All,

Am new to posting, but have been browsing the MSE boards for a while now.
Am now addicted to the house buying and selling board

Anyway, my wife and I have now accepted an offer on our flat, and have had an offer accepted on the house that we want. Happy Days! The wheels are now in motion and things are moving.

I have a quick question which I've been wondering about for a while.
We are putting down a deposit on the new house. This deposit will come from the equity we're making on the flat. From what I understand we have to pay the deposit on exchange of contracts. But - we obviously wont have the money available until we complete.

How does this work? I'm sure this must happen all the time so there must be a logical explanation. Do you just put down a small (couple of hundred quid) deposit at exchange, and pay the rest at completion?

Cheers,
Paul

Willapp_2

Ha, I asked exactly this question a few weeks ago when we were in the same position. Yes there is a simple answer...

Because you are selling as well as buying, you will (or should) exchange contracts for the purchase and sale simultaneously. The deposit for your purchase is funded by the deposit your buyer pays to you, and so on down the chain. The only person who actually has to stump up physical cash is the person at the bottom of the chain - i.e. an FTB (first time buyer) or someone with nothing to sell.

It doesn't matter if your buyer's deposit won't reach the typical 10% that you would be expected to put on your purchase - your solicitor will usually agree with your seller's solicitor that the deposit you receive will be used as the deposit for your purchase.

Hope that helps!

ginvzt

As far as I understand, you received the deposit from your flat and use it towards your new house. And the amount usually is 10%. I am not sure how exactly it works in the chain - but I am sure guys on here will be able to explain more!!!

prutter

Aha - that sounds very sensible. Thanks for the replies guys.
Our buyer is a FTB. Whether she has a deposit or not I dont know, I guess she could potentially be a 100% mortgage buyer.
Sounds like the solicitors will sort this out.
Good good - thanks for the help.

Richard_Webster

It helps if we get the meaning of the word deposit straight first.

Solicitors use the word to refer to the amount put down when contracts are exchanged. not the difference between the purchase or sale price and the mortgage.

Traditionally it was necessary to put down 10% on exchange. Lots of people get 95% mortgages and simply haven't got that much. So 5% is often accepted.

It goes further than that though. Suppose you are selling for £100K and buying for £150K. Your buyer (FTB) is borrowing £95,000 and say has to provide £750 for costs Land Registry fees etc. So he'll have to find £5,750. His solicitor gets that money off him before exchange and offers it as a deposit or may be only gets £5,000. The FTB's solicitor then phones up his seller's solicitor to do the exchange and offer that amount and then that solicitor phones the solicitor above and tells him he's got £5,000/£5,750 deposit which will be provided by the FTB. Usually the next seller's solicitor will accept it. If there is a big difference between the prices you are selling and buying for then the deposit offered from below might be thought to be a bit small and you might be asked to put something in. If you can't then your solicitor's normal line to the seller's solicitor will be: "My client was relying on his sale and hasn't got any more money to put in..." Seller's solicitor: "Can't he borrow from family or something?" Your solicitor: "Don't know, but even if he could it would take a time - don't you want to get the thing exchanged?" Seller's solicitor phones his client who usually says that as long as it gets exchanged quickly and there is enough deposit to discourage someone from sacrificing it and disappearing, he's happy.

In practice, of course, the conversations don't take place because most solicitors know the score...

That's the usual kind of scenario so normally as long as there is perhaps no more than a 50% difference between your sale and buying prices you will probably not have to find any money at exchange stage. You wouldn't be the only one who hasn't got any free money so we are quite used to this happening. If your buyer is getting a 100+% mortgage and really has nothing then there are ways of dealing with it.

As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying clients.