Moving home using equity as deposit

AnonymousCoward

Hi everyone,

Think I have this sussed after a lot of Google-Fu, but would appreciate feedback.

Equity in my current flat is roughly £25,000. Looking at moving from a flat to a home, prices are roughly £250,000 in our area.

Would the £25,000 equity in the current property be used as the deposit? Or would I be expected to have £25,000 saved separately? To clarify, we would sell the flat; no second property.

Thanks in advance!

enthusiasticsaver

Yes you can use the equity in your current property towards a deposit on the next. However bear in mind you may not get what you are expecting to get for your flat and you will also need to find money for costs - legal, surveys, stamp duty, moving costs etc etc so it is good to have a savings buffer rather than only relying on the equity in your current property. You presumably will also need more furniture in a house so saving for that would be sensible as would be money for any immediate work needed on the new property. Moving is expensive.

SDLT_Geek

"Deposit" is used to mean different things.

The first meaning is the amount you pay to your seller (through the conveyancer) at exchange of contracts as an earnest for completion. This has to be real money, you cannot magickly turn the £25K difference between the value of your flat and the mortgage on it to cash. But the buyer of your flat might give your conveyancer a 10% deposit in real money which can be used "up the chain" by you as your deposit on your purchase. Though if you have no real money to add to it you might be asking your seller to accept a deposit of less than 10%.

I suspect you are using "deposit" in a looser sense as being the difference between the value of the house you want to buy and the amount you want to borrow. You do not have "real money" you could hand over for that amount, but once the sale and the purchase are both complete that is how much of your money has gone into the property. I might prefer to call it "equity" rather than a deposit. Lenders often look at what % equity a borrower is putting in so they can see what the loan to value ratio is when they assess the risk to them in lending money.

AnonymousCoward

Thank you both - excellent explanations!

enthusiasticsaver

In the past when it comes to exchange of contracts and not had sufficient cash due to our money being tied up in our existing house we have used the money received from our buyer and asked for 5% deposit rather than 10%. Obviously if something goes wrong between exchange and completion the potential loss is still 10% but we have not had to find the full 10% up front.