Question regading deposit

Evaldas

Hello there,

I know this is a bit stupid question but...

I've seen at couple of places on the internet saying:
You'll be asked to pay a deposit- usually 10% of the property value before contracts can be exchanged.

So if i'm getting myself a 95% LTV mortgage will there be another 10% on the top of my 5% deposit? :eek:
And/or can I agree with seller to pay smaller/no deposit?

Thanks

jackomdj

No such thing as a silly question.

The 10% is part of the price of the house. So if the house is £100k usually you would pay £10k to your solicitors when you exchange.

Your solicitor can negotiate to only pay 5% (ie what you are giving as cash) as the deposit, however if you pull out you would still have the usual 10% that they could chase you for (ie the 5% lodged with your solicitor plus another 5%)

G_M

Evaldas wrote: »

You'll be asked to pay a deposit- usually 10% of the property value before contracts can be exchanged.

Thanks

Are you sure?

It is normal to pay 10% (or another amount by agreement as jackomdj says above) ON exchange, but do not under any circumstances pay this BEFORE exchange.

If you cannot negotiate a smaller deposit you will need to find this cash somewhere (short term loan?) though of course at Completion you will get 95% from your mortgage lender whilst only having another 90% left to pay.

Guru86

Can you just explain the short term loan theory? I too will be doing this as getting a 95% mortgage.

Doesn't the mortgage go straight to sellers company? So I would be stuck with a outstanding loan.

Sorry to sound a bit stupid

lizards

I've been a first time buyer three times (don't ask!) and I've had variously a 100% mortgage, a 125% mortgage (Northern Rock) - both these were over a decade ago, and earlier this month, a 95% HTB mortgage.

The first two times we exchanged and completed on the same day which I think solved this issue as we had no deposit at all to pass on. More recently our seller was happy to accept a 5% deposit instead of a 10% - this seems quite common especially with help to buy. It was all handled through solicitors and seemed to cause no issue whatsoever.

sebadee

I am confused now, I thought the deposit went to the sellers bank + what your mortgage provider lends (the other xx%)?

jackomdj

The deposit sits in your solicitors client account from exchange to completion. At completion your deposit, along with the other funds (could be more money from you or money from a mortgage company) is transferred to the person you are buying from.

If you are second or more in line the other funds would probably include money from the people buying from you too, which is passed up the chain as the completions happen.

G_M

Oh dear.

Money for the purchase is passed from the buyer (or his solicitor if he chooses to use one) to the seller (or his solicitor).

{that's a bit tongue in cheek, since anyone using a mortgage will have to use a solicitor}.

So to simplify, lets assume both buyer and seller have solicitors.

There are 2 payments made:

1) at Exchange of Contracts. Usually 10% (unless otherwise agreed)
2) at Completion, the remainder (Usually 90% unless otherwise agreed)

So a day or longer before Exchange, the buyer must give his solicitor 10% (so that solicitor can pay 10% on his behalf at Exchange)

Then a day or so before Completion,
a) the buyer's mortgage lender gives the buyer's solicitor the agreed mortgage amount AND
b) the buyer gives his solicitor any other amount required to make up the purchase price (eg if the mortgage is, say, 60% of the purchase price)
On Completion, the buyer's solicitor can then pay the seller's solicitor the outstanding 90%

Now, if the buyer is getting a 95% loan (as here) then at Exchange the buyer will have to give his solicitor the 5% he is paying himself, AND either find another 5% (eg via a short term loan), or negotiate to only pay 5% at Exchange.

Just before Completion, the buyr's mortgage lender gives the buyer's solicitor the 95% loan. But if the solicitor has already paid 10% at Exchange, then 5% of the mortgage loan is not needed at Completion (since only 90% of the purchase prie is outstanding) so the solicitor passes that 5% back to the buyer who can pay off his short term loan.

Clear?

Edit: please note also there are two confusing but completely different meanings of the word 'deposit'.

1) estate agents and banks talk about a buyer's 'deposit' as being the cash they are putting towards the purchase ie the purchase price (say £100,000) minus the mortgage (say £95,000). So the buyer's deposit in this example is 5%.

2) lawyers talk about about a purchase 'deposit' as being the money paid at Exchange of Contracts - usually 10% of the full purchase price.

The two are different. The amounts are different. They should not be confused .

Guru86

That's great thanks for clearing that up.