Deposit from equity

hufc2002

Hi


I am after a little bit of clarification.


Our house is currently on the market and we are planning to use the majority of the equity from the sale as the deposit on our next purchase (circa £20k).


Can we do this or do we need to have the 10% deposit already sat in the bank? We already have £12k in savings with some of this ear-marked for solicitor fees/stamp etc.


Thanks

m0bov

The deposit is the equity from your sale, it gets passed up the chain.

hufc2002

Thanks for the response, that has reassured me.

AndyTails

There are two separate things in a house purchase that are both called "deposit".

1. One is what becomes your equity in the new house, i.e. the amount of the purchase that is not covered by your mortgage. The equity in your current house can be used for this.

2. The other is what you give to the vendor (or, more accurately/usually the vendor's solicitor) on exchange, which he gets to keep if you subsequently pull out. This is normally expected to be 10% of purchase price, and you can't use your equity for it - the whole point is that it's easy access for the vendor if you fail to complete, so they don't have to sue you for it.

In reality what often happens in a chain is that people in the middle of the chain (such as yourself) don't have sufficient savings to both pay the deposit and pay the removals / solicitors / stamp duty etc. Therefore in your position your solicitor will probably suggest to the vendor ('s solicitor) that they accept as deposit whatever deposit you receive from your own buyers. The vendor may or may not accept this (though I believe they normally do).

If the vendor doesn't accept this... erm... you'd better find some money somewhere or you might have to pull out. But most vendors would rather accept it and have the sale continue than have to go searching for a new buyer.