FTB panicking about exchange deposit vs mortgage deposit

matt_heath

Hi all.

My partner and I are First Time Buyers about to purchase a house for £245k with a 10% deposit.

We're just finishing up with searches etc and the more I read about the 10% exchange deposit the more nervous I get. Various things online suggest this is separate from your mortgage deposit.

We have a pot of about £32k towards this purchase - £24,500 for the deposit, £5k or so for fees and stamp duty, and the rest for moving costs etc. When we exchange contracts does that 10% deposit count towards our mortgage deposit? Or do we need to find another £24.5k from somewhere?! I've been reading various threads here and articles online and still can't be certain here.

Apologies if this is a stupid question - the complexity and backwardness of this entire process has caused me to doubt myself and my judgement at every turn.

JoJo1978

You're fine, this is a nightmare process whether you're FTB or not!

Mortgage deposit is the difference between the property value and what you're being lent. You've got that.

Exchange deposit in your case being at the bottom of the chain will be this sum of funds. You'll give it to your solicitor along with SDLT and solicitor fees before exchange and ready for completion.

Now imagine the next up in the chain, your vendors. They may need a exchange deposit too to pass to their vendors. They need that at exchange but perhaps all their cash is tied in their house. They'll use yours and just put any extra needed towards it to make it to 10%.

Hope that helps! Don't worry your solicitor will bill you and set it all out. Ask if it's not clear

saajan_12

You only need one lot of £24.5k (+fees) not two. And breathe.

Exchange deposit = 10% of purchase price as standard. This is paid upon exchange, if you subsequently fail to complete (very unlikely) then you lose this.

Mortgage deposit = Purchase price - Mortgage loan. This isn't really a 'deposit' in the sense of securing the purchase, it's just your contribution to the purchase. On completion, the lender sends their 90% and you top up any monies. Since you've already paid 10% on exchange, there's £0 for you to top up. If you had a 85% loan and 15% deposit then you'd pay 10% on exchange and top up 5% on completion.

G_M

I hate the mis-use of the word 'deposit' in the context of a mortgage. It's actually the money you already have with which you are going to buy something. Then you are going to top that up with a loan.

A 'deposit' is strictly speaking a down-payment or advance payment on a purchase. In property deals, that is usually 10% of the purchase price, paid when the contract is agreed (Exchaned).

The balance, ie the outstanding 90%, is paid when the purchase actually takes place (Completion).

Your lender gives you whatever loan has been agreed at (or just before) Completion. That may =, or be more than, or less than, the 90% balance still owed.

Some people borrow relatively ltttle eg 40% of the purchase price, meaning their (mortgage) 'deposit' is 60%. Some years ago, there were peope who borrowed the whole lot (100% mortgage) andd had no (mortgage) 'deposit' at all.

But in both cases they still had to make a 10% advance payment (a real 'deposit') at Exchange.

MRPEEVED

I'm worried too. Our purchase price is £150000. Our mortgage is 120,000. Our deposit is coming from our house sale. We won't actually have any of it until we get the funds from our sale. Is this where they say 'the deposit passes up the chain'?

saajan_12

MRPEEVED wrote: »

I'm worried too. Our purchase price is £150000. Our mortgage is 120,000. Our deposit is coming from our house sale. We won't actually have any of it until we get the funds from our sale. Is this where they say 'the deposit passes up the chain'?

Yes, your buyer pays 10% of current house price and your solicitor passes that up the chain to contribute to your purchase deposit. If you are upsizing so your purchase is more expensive than your sale, then the 10% deposit from your sale is not enough to make up 10% of your purchase price. You can either negotiate with your vendor to accept a lower % or top up using your own cash to get to 10%.

If you have further questions, suggest you start your own thread.

matt_heath

Thank you everyone, this confirms what I suspected but have learned to double check every assumption during this process!

Never moving again after this...

Lysimache

Is the American use of the word downpayment a better option?

juniordoc

You might find a nice surprise in the budget tomorrow cutting stamp duty costs for first time buyers, I'm due to complete in 10 days so in the same boat, keeping my fingers crossed!
It would certainly help the furniture fund!

G_M

Lysimache wrote: »

Is the American use of the word downpayment a better option?

for what?

if you mean for the cash a buyer is putting up (as oposed to mortgage), then no - that's not what a 'downpayment' is.

if you mean for the deposit payable at Exchange, then no, 'deposit' is a perfectly good Engish word.

matt_heath

I did wonder about this, suspect it won't take effect upon announcement but one can hope...