Deposit at exchange?

sofieellis

Hi, please coukd someone help to explain something for me.

We've accepted an offer on our house and had our offer accepted on our next house. So far, everything is going well (touch wood). We have a mortgage offer, searches and surveys have been done and things are progressing nicely. Our buyer is an investor, so there is no chain at that end. Our purchase is vacant possession, so no chain there either.

We are using money from the sale of our current property to pay for the deposit for the new mortgage.

What I don't understand is, what happens regarding the deposit at exchange of contracts? If exchange on the purchase takes place before we've completed on the sale (which I presume it has to do), then where does the 10% deposit to the seller come from? (The deposit from our sale won't cover the deposit forour purchase).

This is my third house purchase, so I should know this, but I simply can't remember paying a deposit to the seller before completion before. Does this mean we have to exchange and complete on the same day?

I am so confused. If anyone can help, I'd be very grateful.

LateStarter

The 10%, while standard, is not in any way fixed in stone. I know a case where the buyer was unaware until the week before exchange that he had to find 30k (some people live on a different planet!). After a couple of panicked phone calls, the seller agreed to a much smaller deposit at exchange. Not everyone has a wad of cash lying around.

stator

Link the sale and the purchase together, exchange on the same day and then your buyer will pay you 10% on exchange and you pass this on to your seller. (If your new house is more expensive you top up the money to make 10% of your purchase).

If you don't want to link the two transactions then you have to stump up the cash yourself. You might be able to negotiate only 5% cash deposit on exchange if really needed, you'd want to speak to your solicitor about this.

In most cases you would link the two transactions to create a chain rather than separate.

sofieellis

Thanks. As already explained the sale deposit won't cover the purchase deposit. Also we don't have enough savings to cover it.

The same thing must have been the case last time we sold and bought but I can't remember this being a problem. Nor can I remember how it was resolved.

sofieellis

LateStarter wrote: »

The 10%, while standard, is not in any way fixed in stone. I know a case where the buyer was unaware until the week before exchange that he had to find 30k (some people live on a different planet!). After a couple of panicked phone calls, the seller agreed to a much smaller deposit at exchange. Not everyone has a wad of cash lying around.

I must live on the same planet as the person you know! I just can't remember paying a 10% (or any other amount) deposit before the day we completed, when we bought our previous houses. We can't have done, as we had no savings to do it with and were in the same position as we are in now.

We are using the equity we have in our home, to pay a 20% deposit on a mortgage for our new house, but we won't have that equity until our sale has completed.

There must be a way to do this, as it's what we've done in the past, but my head is spinning at the minute!

Surrey_EA

As mentioned above, whilst 10% is the 'normal' figure put in on the contract, essentially the deposit is whatever amount that the seller deems to be acceptable. Often these days it is reduced to 5% as with the increase in prices this is often a substantial amount of money.

It is not unusual for a someone to use the precise amount coming from their sale to use on their purchase, despite the fact the purchase price might be greater. For example, if selling at £250k and buying at £300k, person receives deposit of 5% = £12,500, offers £12,500 on their purchase, despite this representing just over 4% of purchase price. It is for the various solicitors to clarify what deposit is expected, but it is negotiable.

djedga

Surrey_EA wrote: »

As mentioned above, whilst 10% is the 'normal' figure put in on the contract, essentially the deposit is whatever amount that the seller deems to be acceptable. Often these days it is reduced to 5% as with the increase in prices this is often a substantial amount of money.

It is not unusual for a someone to use the precise amount coming from their sale to use on their purchase, despite the fact the purchase price might be greater. For example, if selling at £250k and buying at £300k, person receives deposit of 5% = £12,500, offers £12,500 on their purchase, despite this representing just over 4% of purchase price. It is for the various solicitors to clarify what deposit is expected, but it is negotiable.

This is what we did / are doing - I tried to type an answer to you earlier but this said it better than my brain could (we're supposed to exchange today so brain is currently malfunctioning significantly while we wait).

You could even negotiate a deposit of £1... although your seller may not be too happy with that!

stator

Negotiate it down to 5% but speak to your solicitor because if the purchase falls through you could still be liable for more costs
If you don't have the cash for the purchase deposit then you really should delay exchange until the same day as your sale exchange otherwise if your sale falls through you could be left liable for a lot of costs and no money to pay.

Surrey_EA

stator wrote: »

Negotiate it down to 5% but speak to your solicitor because if the purchase falls through you could still be liable for more costs
If you don't have the cash for the purchase deposit then you really should delay exchange until the same day as your sale exchange otherwise if your sale falls through you could be left liable for a lot of costs and no money to pay.

If you are buying and selling, and don't have the money for the purchase available separately from the property you are selling, you would be mad not to make the exchange simultaneous, in my view.

sofieellis

Thanks everyone for your answers.

I'm presuming the exchanges will be simultaneous, but that won't cover the 10% deposit for our purchase. No one has mentioned anything to us about paying any sort of deposit at exchange, so I have no idea what the vendor is expecting, or if they will be willing to negotiate.

Is this something that the solicitors will be working out? Our solicitor knows how we are intending to pay for our purchase and hasn't raised this as an issue.

Good luck with your exchange, djedga - I hope it's all gone well.

Surrey_EA

It is something your solicitor will confirm with your vendor's solicitor. What sort of gap in price are we talking between your sale and your purchase?