Contract deposit and cash flow

petescuff

Hopefully I've not missed the answer to this elsewhere, apologies if I have.

Wife and I are starting to think about moving to a new house, and I'm looking at our finances to make sure I know what is going on.

My house is currently worth about 200k, and I have about 100k equity in it.
I'm looking for houses about 300k - I have an agreement in principle for the 200k difference.
We can put out hands on 30k in cash at the moment.
I've estimated various buying and selling costs at about 13k in total, some of which I guess we'll need before purchase, some after/at moment of.

That all looks pretty healthy to me, but what I don't really understand is the deposit needed at the point of the exchange of contracts. Most advice suggest 10%, so I'll need 30k for that, and have that money back afterwards. But as I'll have spent some of that upfront or will need to have it immediately, do I essentially need more as a float. And if so, what would you recommend?

Many thanks!

G_M

Based on your figures and assuming you buy at £300K:

* at Exchange you'll use your £30K cash as the deposit (no, you don't get this back!)
* at Completion you'll owe the outstanding £270K
* £200K will come from your new mortgage, and £70K will come out of the £100K equity in your current home
* that leaves you with £30 equity from your current home
* your other costs you estimate at £13K (I assume SDLT, estate agent selling fee, legal costs, survey on new home, mortgage application fee etc), and these too are paid at/after Completion, out of the £30 equity
* that leaves you with a contingency fund of £17K

petescuff

Splendid, thanks!

Slithery

Also your buyers deposit should be available to you to pass up the chain, so you should have 20k from them to put towards your deposit - meaning you only have to stump up the additional 10k, not the full 30k.

petescuff

Oh? Does it work like that? I had no idea.

saajan_12

petescuff wrote: »

Oh? Does it work like that? I had no idea.

Lets start at the beginning then

Your buyer should give you(/your solicitors) a 10% deposit on exchange ~£20k
You should give your seller a 10% deposit on exchange ~£20k passed on from your buyer + £10k cash from you
* Note both these 10% are the ‘standard’ but can be negotiated, so you’d adjust your £10k top up cash deposit on exchange accordingly. On completion you then have to pay the £270k balance.

You sell your property for £200k and pay off the £100k mortgage leaving £100k to split between paying for the new property / costs / cash to keep.
So you can get a new mortgage for £200k, pay the remaining £70k to buy the property, £13k for buying and selling costs, leaving £17k in cash.
Or, you can get a new mortgage for £183k, pay the remaining £87k to buy the property, £13k for buying and selling costs, leaving no cash.
Or, anything in between.

petescuff

That's really useful, thank you.

ThePants999

it's even better than that: when in a chain, standard practice is to use the deposit at the bottom of the chain all the way up the chain. You're liable for the whole 10%, but you don't actually have to pay it until completion.

So your buyer pays you (well, your solicitor) £20K on exchange, and your solicitor passes it to your vendor's solicitor.
- When you complete, you then have to stump up the rest (which will come from your sale proceeds and new mortgage)
- If you fail to complete, you owe the remaining £10K (as well as the seller's costs etc), though this is obviously highly unusual.

In short, if you can get a big enough mortgage, you don't necessarily have to pay out any cash at all. (At least, not related to the exchange/completion process - obviously you'll incur ancillary costs that you need to pay for directly.) On my last sale/purchase, despite the fact that we were upsizing, I didn't pay my solicitor a penny beyond their initial disbursements advance - the vendor accepted a slightly-below-10% deposit, and the sale price plus increased mortgage covered the remaining balance, and the solicitor's fees, and the EA's fees.

Note that although what I've described is "standard", the vendor MIGHT insist on getting the full 10% at exchange.

alex_163163

It's quite likely that you won't have to add any 'top-up' money at exchange. Your solicitor should be able to negotiate with the sellers solicitor and agree to whatever amount is passed up the chain from your buyers (may or may not be the full £20k).


I have just exchanged on my sale and purchase.
My buyers paid an £11k exchange deposit (full 10%), and that is all that passed up the chain to our sellers, on a £210k purchase.
We did not have to provide an extra funds for exchange.