Exchanging without full deposit?

amanda757

Hi,
We are all ready to exchange on our house sale and purchase, expect our buyers (bottom of the chain) have not paid their deposit, which we have been chasing for months.

We have just heard this from our estate agent: spoken to buyers solicitor and apparently they can exchange but with a deposit of only £15k and not the full 10%. They would set a date to complete in about 3 weeks time to give them more time to get the remaining funds in place.


Any opinions or advice on this please? What are the implications if we exchange on this basis and completion falls through? Particularly for our onward purchase as the deposit we owe on that is a lot more than the deposit on our sale.


Thanks

HouseBuyer77

So what percentage would they be giving you?

Is the shortfall because they're getting a mortgage with LTV less than 10% or because they don't actually have all of the money they said they had (so need extra money to complete the purchase that mortgage won't provide)? If the latter they'd be exchanging without actually being able to complete which seems risky.

Whilst you can sue for non-completion if they're strapped for cash this may not help much, and those above you in the chain will sue you so it's unlikely to be pleasant for you either.

You need to determine the reason for the shortfall and the source of the further funds they say they are getting. You also need to find out if you can reduce your deposit to your vendorr.

mark5

I can't see them handing over a 15k deposit if they don't intend to proceed with a purchase in 3 weeks.

This is a question your solicitor should answer for you about any risks. when I sold my previous house in 2006, the buyer only put down 5% deposit because they had a 95% mortgage. It didn't cause any problems the solicitor did ring me to tell me though, but didn't seem to bothered about it.

AnotherJoe

10% deposits are often untenable I think the last few times I've moved we've agreed 5% up the chain, take it or leave it.

The £15k is only if they pull out between exchange and completion, I would sugegst you see if you can get everyone to agree (Since often each deposit ripples up the chain) and stop hanging about.

HouseBuyer77

The £15k is only if they pull out between exchange and completion, I would sugegst you see if you can get everyone to agree (Since often each deposit ripples up the chain) and stop hanging about.

give them more time to get the remaining funds in place.

My concern is the buyers have say a 90% LTV mortgage, but only currently have 15k cash which isn't 10% (maybe it's 6 or 7%) so to complete the sale they would need to get extra cash which they believe they have on the way but don't have it yet. They're suggested exchanging before they have all required funds in place on the assumption the rest comes along so completion can occur.

I can't see them handing over a 15k deposit if they don't intend to proceed with a purchase in 3 weeks.

It's possible they don't understand the consequences of not completing, it's possibile their solicitor is incompetent (maybe an online conveyancing factory), it's possible they believe they will have the total funds required no problem but whatever source they're getting the last bit from will fall through.

It may be OP has received confused communication and in fact the buyers have a 95% LTV mortgage and 5% cash, in which case all is fine, provided OP can make up enough money to produce their own 10% deposit or the chain is willing to take a reduced deposit (which they often are).

It's rather unlikely my supposed nightmare scenario is true, but not impossible. Do be sure of the facts before you proceed with exchange!

McTaggus

Having just been through this, but from the other side, our options (and therefore our sellers options) were as follows:


1. Negotiate back up the chain to see if they will accept a lower deposit value throughout the chain. For instance, if your buyer is short £5K, then see if you can negotiate down to the same level further up the chain.
2. Accept the deposit value, but specify in the contact that if everything falls through, then they remain liable for the full amount
3. Accept the lower deposit value, if you can pass more up the chain and not be negatively impacted, but this comes down to your risk tolerance


BTW - just to add just because they have 90% LTV, doesn't mean they have 10% sitting in the bank to put down on exchange. That may be ported to their new mortgage based on equity in their existing property - rather than being 10% in ready cash that's required on exchange, which you also need to put down from your own ready cash, rather than being from your property equity.

amanda757

Thanks all. They have a 90% mortgage so need 10% deposit - which would be 21k. They are first time buyers so not selling a property.

If everyone agreed to £6k less deposit wouldn't this mean all the sale prices are £6k lower throwing everyone's LTV and mortgage offers out?

Thanks

emmatthews

It is 'usual' to exchange with a 10% deposit. However, when 95% mortgages were readily available, a lot of people exchanged with 5%, but the permission of the vendor would be sought.

There is no impact on purchase price by accepting a lower deposit for exchange.

There is a difference between a deposit for exchange (usually 10%, sometimes lower) and a deposit for mortgage ltv purposes. If you had a 40% deposit and a 60% ltv mortgage, the deposit required for exchange would still be 10%.

HouseBuyer77

Thanks all. They have a 90% mortgage so need 10% deposit - which would be 21k. They are first time buyers so not selling a property.

So they are 6k short of the money required to complete the purchase, they have 15k cash, 90% (189k) mortgage, purchase price is 210k.

If you agree to a reduced deposit this doesn't alter the purchase price, however they don't currently have the money to meet the purchase price!

If you reduce purchase price by 6k then this will have an effect on their mortgage. Potentially to the point they can't proceed as they'll have an LTV of ~93% and might not get a mortgage. Or might not want the higher cost of such a mortgage. It will also slow things down as they'll need to reapply.

Should you reduce purchase price you can ask your vendors if they'll reduce theirs to match, they may or may not agree.

It sounds like they think they will get an extra 6k from somewhere so they can actually complete at the agreed price. Determine where this is coming from. Do not exchange until you are confident they have all the money in place (cash in hand + their mortgage = purchase price). The solicitor shouldn't allow exchange until this occurs but as above incompetent solicitors do exist!

StumpyPumpy

amanda757 wrote: »

They would set a date to complete in about 3 weeks time to give them more time to get the remaining funds in place.

Why not wait the three weeks it would take them to find the remaining funds before exchanging?

To be honest. If they can't do that I'd be a bit suspicious: Do they need to have exchanged before being able to raise the money? Maybe they think they can source the £6k from credit cards or another loan and are trying to minimise the interest payments, which these days could lead to disaster for everyone when their mortgage provider does its final checks.

Your solicitor is being paid to advise you on issues like this, I'd suggest you try and get your money's worth out of them.

SP

G_M

HouseBuyer77 wrote: »

So they are 6k short of the money required to complete the purchase, they have 15k cash, 90% (189k) mortgage, purchase price is 210k.

Exactly.

They claim they have another £6K coming from 'somewhere' within the next 3 weeks.

Perhaps they do. Perhaps they are just hoping for a miracle. Perhaps whoever is going to lend, give, release this money will change their mind.

Although legally the risk is theirs (they'd be liable for all losses of everyone up the chain) in practice it's a nightmare for all concered if Completion fails.

You need much more assurance of their finances.