Deposit amount within contract

lowfoon

I am purchasing my first property with my partner and currently at the stage of signing the contracts. Having received the documents today, I am slightly confused to the amount outlined as the deposit on the contract as this amount equals to 10% of the property price rather than the 5% we agreed with our mortgage (95% LTV).

Speaking briefly to my solicitor, they mentioned that this is standard procedure upon completion whereby 10% of deposit needs to be paid. I am slightly confused and worried about this and somewhat worried as we currently do not have 10% + legal fees currently available to us.

Can anyone clarify on this matter?

chris_m

This is the common confusion caused by two things being given the same name

The deposit that is being asked for is that which is placed to establish the contract to purchase, which is frequently 10% and is not refundable if you should fail to complete the contracted purchase..

The deposit of which you are thinking is the difference between the purchase price and what your lender will be lending.

However, what your solution is I don't know - try asking your solicitor if 5% might be possible. I'm sure this won't be the first time they've come across this situation.

lowfoon

Thanks for your quick reply, much appreciated. Does this mean there are two lots of deposits required to be paid? One of which was agreed with the mortgage lender and the other if the completion does not fall through?

Sorry if I have completely misunderstood.

elverson

lowfoon wrote: »

Speaking briefly to my solicitor, they mentioned that this is standard procedure upon completion whereby 10% of deposit needs to be paid. I am slightly confused and worried about this and somewhat worried as we currently do not have 10% + legal fees currently available to us.

It's 10% on exchange (the day you sign the contract) - the balance on completion, including your mortgage amount. Your seller would need to agree to reduce this to 5% on exchange.

http://hoa.org.uk/advice/guides-for-homeowners/i-am-buying/how-do-i-exchange-contracts/

elverson

lowfoon wrote: »

Thanks for your quick reply, much appreciated. Does this mean there are two lots of deposits required to be paid? One of which was agreed with the mortgage lender and the other if the completion does not fall through?

Sorry if I have completely misunderstood.

In your case they will be the same amount, ie 5% of the sale price. The mortgage will start on the completion date and will be the other 95% of the sale price.

However, if for example you were using a 20% deposit/80% LTV mortgage to buy a house, you'd still only pay 10% on exchange, with the other 10% paid on completion date.

eddddy

It might be better to look at it this way:

The vendor wants you to pay...
- 10% on exchange
- 90% on completion

That's a problem for you because you have...
- 5% available in cash to pay on exchange
- 95% coming from your mortgage lender on completion.

(There is usually a gap of a few weeks between exchange and completion.)

It's surprising that your solicitor hasn't spotted this.

So explain the situation to your solicitor, He/she will ask the vendor if they will accept 5% on exchange and 95% on completion.

Hopefully, the vendor will say yes.

elverson

Also, you will need to pay your solicitor's fees and Stamp Duty on the completion date, so make sure you have these funds available.

lowfoon

Thank you all for the clarifications, I feel much more at ease now.

I was also somewhat surprised that the seller did not spot this, presumably they would of got this information from my mortgage broker?

Also does this make much of a difference from the vendor's perspective that they could push back on?

chris_m

lowfoon wrote: »

Thank you all for the clarifications, I feel much more at ease now.
I was also somewhat surprised that the seller did not spot this, presumably they would of got this information from my mortgage broker?

Not necessarily, it may well be that all they have is confirmation from your solicitor that you're good for the purchase price.

Also does this make much of a difference from the vendor's perspective that they could push back on?

Shouldn't do - in the end they are still going to get 100% or the sale price (less EA fees and their legal fees of course)

eddddy

lowfoon wrote: »

Also does this make much of a difference from the vendor's perspective that they could push back on?

They might push back for a couple of reasons - but it gets a bit complicated.

1) Assuming there's a chain... if you don't complete for any reason, your vendor could get sued 'down the chain' for tens of thousands of pounds. Your vendor would then want to sue you.

The bigger your deposit, the less likely he/she is to be out of pocket, if that happens.


2) People higher up the chain might insist on 10% deposit (for the reasons mentioned in 1). If you're only putting in a 5% deposit, your vendor might have to find more cash to top-up his deposit to 10%. (And he might not have the cash).

lowfoon

Thanks, however upon agreeing on the offer I would of thought that the deposit amount would have been put forward to the vendors by the estate agents - Am I wrong in thinking that?

If you are selling a property, do you typically presume that you will be received at least 10%?