Exchange deposit question

mrt01983

Hi all

long time lurker...

I've searched and searched these forums and the wider net and I can't find a definitive answer on this.

Here is my scenario.

We are selling our flat for £230k.

We are buying a house for £385k.

All our mortgage deposit of £60k is coming from equity in the flat, which is fine.

Our buyer is a cash from sale buyer but paying a 10% deposit on exchange, so £23k.

I know that it is customary on exchange to pass 10% of the purchase price to your vendor's solicitor, so in our case, £38.5k. I also understand that this can be made up from your buyer's deposit, so we do have £23k to pass up the chain.

However, that £23k is only c.5.8% of our purchase price, and we don't have any other cash we can put towards it.

So my question is, am I going to have to come up with another £15.5k to make our exchange deposit up to the 10%? This is going to be highly difficult if not impossible. Or does it just go up the chain regardless of percentage and I'm worrying about nothing?

This is our first time moving house, we were previously FTB so we had a cash deposit we could hand over on exchange.

Thanks for any help

(P.s. I know I should speak to our solicitor but we're very early in process and I went for a cheap one that said "any excessive contact will be charged by the hour" and I don't fancy pushing them just yet... more fool me for being tight. I'm just keen to get an idea).

JP08

As I understand it, that is precisely how it works. Otherwise you are not putting up the 10% deposit on the place you are buying. And so on up the chain.

Negotiating other percentages is possible. But really it will need the agreement of the rest of the chain and will probably constitute extra hours and extra cost by your solicitor.

Typhoon2000

Yous solicitor would have to confirm that your vendors are happy with a 5.8% deposit for exchange of contracts.

alex_163163

In my experience and from reading these forums, it shouldn't be an issue. Your solicitor will negotiate with the sellers and likely agree to exchange with a lower amount.
I recently sold for £115k (so my buyers put down £11.5k - cash buyers) and we bought for £210k. We were not even asked to try come up with the other £10.5k to make our purchase exchange deposit up to 10%
1000s of buyers must be in the same position when buying and selling simultaneously so I would say don't worry about it too much. Email your solicitor, explain you have no further cash funds, exchange will need to be with just the deposit passed up the chain, and see what they say. I personally don't think there will be any problems. It's not like the sellers actually get their hands on the money until completion anyway.

IrishBird

We've just had a similar experience but we are the vendors at the top of the chain. We got a phone call from our solicitor on the day of exchange to say 'buyers only have the 10% passed up the chain from their buyer' which was well short of the 10% on our property. Her advice was we could go back and ask for it but it will delay exchange or accept it and exchange today. The risk is that if they pull out after exchange we are only able to keep this smaller amount of money in theory, hopefully minimal risk. I'm sure your vendor wouldn't want to jeopardise the sale based on this. As everyone else says, flag it up to your solicitor now so it can be communicated to the chain now.

saajan_12

Ask the vendors if they would be happy with a 5.8% deposit (via solicitors or via EA). They might, but don't have to agree.

The solicitors may specify that there is still 10% due if you fail to complete, with the balance 4.2% paid once the date of completion has passed. Of course if you don't have the money, collection will be hard but the vendors can sue you for it.

mrt01983

That's it though, if we pull out of the purchase after exchange I'll have the money, I just don't have the cash up front. As long as our sale goes through there's no issues at all. Even if our buyer pulls out we had a hell of a lot of interest so I'm not worried about that.

I'm happy to agree to pay a full 10% if we pulled out post exchange; is it normal for people to agree to this but with a lower exchange deposit?

kingstreet

It is normal for the first buyer in the chain's cash deposit to pass up the chain becoming a smaller percentage of the higher purchase prices as it goes.

It is not usual for someone with equity in their home to have to produce cash to increase their deposit to 10%.

The solicitors in the chain will resolve this between themselves and their clients.

BTW, the smaller deposit doesn't remove the liability of 10% plus costs if someone fails to complete. It may make getting it harder though.

mrt01983

kingstreet wrote: »

It is normal for the first buyer in the chain's cash deposit to pass up the chain becoming a smaller percentage of the higher purchase prices as it goes.

It is not usual for someone with equity in their home to have to produce cash to increase their deposit to 10%.

The solicitors in the chain will resolve this between themselves and their clients.

BTW, the smaller deposit doesn't remove the liability of 10% plus costs if someone fails to complete. It may make getting it harder though.

So as long as I am happy that I am liable for 10% + costs if we fail to complete, then we should be fine? Do I need to flag to the solicitor or, as you say, they'll sort it out among themselves?

Thanks very much

sparky130a

mrt01983 wrote: »

So as long as I am happy that I am liable for 10% + costs if we fail to complete, then we should be fine? Do I need to flag to the solicitor or, as you say, they'll sort it out among themselves?

Thanks very much

If you even think you'll fail to complete don't proceed any further. At best it's disingenuous to the vendor. And potentially costly to you.

And yes, i'd declare to my solicitor if i intended less than a 10% deposit.

mrt01983

sparky130a wrote: »

If you even think you'll fail to complete don't proceed any further. At best it's disingenuous to the vendor. And potentially costly to you.

And yes, i'd declare to my solicitor if i intended less than a 10% deposit.

I don't think we'll fail to complete, I am 100% confident we will complete. What I mean is, the advice seems to be that hypothetically although we wouldn't put 10% up at exchange, we'd still be liable for the 10% if for some reason we did fail to complete, and so as long as I understand/accept that, it shouldn't be an issue?

I will flag to solicitor, I was just wondering if it is standard practise do they expect it as a matter of course.