Selling and buying house deposit question

kakalokia

Hi everyone,

My question is with regards to paying the deposit for a new mortgage when I sell my current house and buy a new one that is more expensive.

Say for example I have £70,000 left on my current house mortgage and will sell my current house for £100,000, leaving me with equity of £30,000. The new house I'd like to buy for example costs £150,000, and I need to pay a 15% deposit (£22500). The situation is that I don't have any savings that cover the deposit for the new house, therefore I will need to pay the deposit from the equity I get by selling my current house. The question I have is how is this usually achieved? Does the buyer of my house pay the full house price to the solicitor, and then I can use the equity to pay for the £22500 deposit? Or does the buyer of my house only pay his/her deposit to the solicitor (i.e 10-15% of £100,000), which would mean I won't have enough money in the chain to pay for my deposit?

Hope the question is clear.

Thanks

G_M

Current mortgage £70K
Current property value £100K
Equity £30K

Purchase price £150K
Mortgage loan £127.5K (85%)
Buyer's contribution: £22.5K (15%) [note, the term 'deposit' is misleading here]

At Exchange of Contracts:
a) your solicitor will receive a 10% deposit of your sale price from your buyer (£10K)
b) he will pay a 10% deposit of your purchase price to your seller (£15K), using the £10K above + £5K from you (cash). In some cases he may pursuade your seller to accept a deposit of £10K instead of the full 10% (15K). You'll need to ask for this. Let's assume this is the case so you only pay £10K at Exchange.

At Completion:
* you will owe £140K (£150K less the £10K deposit already paid). Your solicitor will pay your seller using
c) your £127.5K mortgage
d) your £30K equity received from your buyer (after paying off your mortgage),
leaving you with £17.5K to go towards your estate agency fees, solicitors fees, SDLT

kakalokia

G_M wrote: »

Current mortgage £70K
Current property value £100K
Equity £30K

Purchase price £150K
Mortgage loan £127.5K (85%)
Buyer's contribution: £22.5K (15%) [note, the term 'deposit' is misleading here]

At Exchange of Contracts:
a) your solicitor will receive a 10% deposit of your sale price from your buyer (£10K)
b) he will pay a 10% deposit of your purchase price to your seller (£15K), using the £10K above + £5K from you (cash). In some cases he may pursuade your seller to accept a deposit of £10K instead of the full 10% (15K). You'll need to ask for this. Let's assume this is the case so you only pay £10K at Exchange.

At Completion:
* you will owe £140K (£150K less the £10K deposit already paid). Your solicitor will pay your seller using
c) your £127.5K mortgage
d) your £30K equity received from your buyer (after paying off your mortgage),
leaving you with £17.5K to go towards your estate agency fees, solicitors fees, SDLT

Thanks for your reply.

I'm just slightly confused about something. Is the deposit the mortgage lender asks for different to the deposit I pay to the seller? Because as part of my mortgage promise the minimum deposit is 15%. Or does your answer basically mean I can pay the 15% mortgage deposit at different stages of the sale/purchase, by paying part of it when exchanging contracts (which from your answer I assume is always 10%?), and then paying the rest of it when I receive the full payment for my house?

Thanks

G_M

kakalokia wrote: »

I'm just slightly confused about something. Is the deposit the mortgage lender asks for different to the deposit I pay to the seller?

Please re-read my reply above especially noting:

Buyer's contribution: £22.5K (15%) [note, the term 'deposit' is misleading here]

toc25

We have just done this, we sold our house and used equity to cover our deposit and most of our fees. We did not need any deposit on exchange. Our buyers deposit was passed up the chain.

The only money we had to pay up front was stuff like the valuation and searches. So for us we needed less than 1k up front everything else was covered by the equity in the house we sold.

I keep reading about this 10% deposit on exchange but I have never had to pay it. As long as your solicitor knows that you are using equity for your deposit then you will be fine.

alex_163163

The term 'deposit' is a slightly misleading one, as there are in fact 2 types of deposit when purchasing a house.
There is the mortgage deposit - in your case the 15% contribution.

There is also the exchange deposit. This is nothing to do with the mortgage deposit really. But it is the amount (typically 10% of purchase price) that is passed to your seller at exchange of contracts, to basically guarantee the sale. If you didn't complete on the purchase you would lose this amount and the seller would keep it.
When buying in a chain and all the 'deposit' is coming from equity in an existing house, it is very common for the deposit to pass up the chain and you not have to contribute anything extra. this just needs to be negotiated by your solicitor with the sellers solicitor.

kakalokia

alex_163163 wrote: »

The term 'deposit' is a slightly misleading one, as there are in fact 2 types of deposit when purchasing a house.
There is the mortgage deposit - in your case the 15% contribution.

There is also the exchange deposit. This is nothing to do with the mortgage deposit really. But it is the amount (typically 10% of purchase price) that is passed to your seller at exchange of contracts, to basically guarantee the sale. If you didn't complete on the purchase you would lose this amount and the seller would keep it.
When buying in a chain and all the 'deposit' is coming from equity in an existing house, it is very common for the deposit to pass up the chain and you not have to contribute anything extra. this just needs to be negotiated by your solicitor with the sellers solicitor.

Thanks for the reply and explaining the difference between the two deposit types, I wasn't aware of such difference.

So to sum up I can negotiate with the solicitor the amount of exchange deposit I need to pay, which will be coming from the exchange deposit paid by my house buyer? This exchange deposit forms a part of the total contribution (mortgage deposit), which I'll pay the rest of when I receive the full payment for my house?

Thanks

alex_163163

Yes, exactly. just make sure your solicitor knows the situation and it should be negotiable.

Just want to try clarify what toc25 posted - when he says he didn't have to pay an exchange deposit, I'm pretty sure he actually most certainly will have done. It's just it was passed up from his buyers deposit. If for some reason he had exchanged contracts and then not completed on the sale, he most certainly would have lost his exchange deposit to his sellers. He just didn't need to top up the exchange deposit from external sources.

toc25

I'm not a he... I meant I didn't have to have any cash for a deposit up front, Which is what the OP was asking about. Obviously I know I paid a deposit.