Deposit of exchange

Lucielou1

Can someone help me to understand the deposit on exchange required. 

We in the middle of a chain of 6 houses. We are using the equity from our sale for the mortgage deposit. If the 10% exchange deposit gets passed up the chain when it gets to us it’s will only be half of what we will need for 10% on the house we are buying. Will we need to add more cash or will the amount that’s going along the chain be ok? We spare money for the fees etc but not for another deposit? 

greatcrested

Two options:

1) you add your savings to the deposit you receive on your sale, to make up 10% on your purchase

2) you ask your conveyancer to ask your seller's conveyancer to agree a smaller deposit eg 5%/whatever, to match the amount you are receiving

Awakeatnight

OK, this is all new to me from when I last brought a house in 2006, there was no such thing as 'deposit on exchange'.
So to help me understand. When buying a new house, say £300,000, I will need to have £30,000 (10%) up front ready to be held a few days before the actual purchase goes through, just liquid, from my current account? Who has £30k just sitting in their bank? Do people normally get bank loans to cover this? Yes, I understand that a lot of this will come 'up the chain' but say only £15k is coming up the chain because I'm selling my house for £150k, £15k is still a lot of money to just have lying around?

greatcrested

Awakeatnight said:

OK, this is all new to me from when I last brought a house in 2006, there was no such thing as 'deposit on exchange'.
So to help me understand. When buying a new house, say £300,000, I will need to have £30,000 (10%) up front ready to be held a few days before the actual purchase goes through, just liquid, from my current account? Who has £30k just sitting in their bank? Do people normally get bank loans to cover this? Yes, I understand that a lot of this will come 'up the chain' but say only £15k is coming up the chain because I'm selling my house for £150k, £15k is still a lot of money to just have lying around?

In 2006, in England, it was normal, as now, for a deposit, usually 10%, to be paid at Exchange of Contracts. That has not changed.

You will need the £30K upfront, before Exchange of Contracts (not 'before the actual purchase goes through" which is legally meaningless but implies Completion).

Whether it's in your current account, savings account, your mum's account, or elsewere is irrelevant.

Many (most?) people borrow less than 100% of the purchase price. A 90% mortgage, or less, is common. Therefore many people have £30K (in this case) to put towards their purchase.

No, I doubt many people get bank loans, but that may be an option if you are getting a 95% or 100% mortgage (do these still exist?)

If what comes 'up the chain' is less than 10% of your purchase price, see my option 2 above!

Slithery

In the majority of cases it's like greatcrested said, the solicitors agree on a reduced deposit being acceptable.

KAP0365

This has confused me... we are moving and our 10% deposit would be £53k... we have £166k deposit in equity from our house move. The developer said upon exchange this would be sorted by the solicitor/mortgage company as we defo do not have £52k cash in the bank? We were told not to worry but having never moved (sold) before we are slightly confused... 

Awakeatnight

KAP0365 said:

This has confused me... we are moving and our 10% deposit would be £53k... we have £166k deposit in equity from our house move. The developer said upon exchange this would be sorted by the solicitor/mortgage company as we defo do not have £52k cash in the bank? We were told not to worry but having never moved (sold) before we are slightly confused... 

Exactly the same for us...our £XXk is in the equity of the house, not sitting in the bank. So I guess it's the first time buyer who provides most of the 'deposit' which simply goes up the chain which each party adding a bit more value depending on how expensive the house they're buying is? Is that right greatcrested?

Slithery

Awakeatnight said:
So I guess it's the first time buyer who provides most of the 'deposit' which simply goes up the chain which each party adding a bit more value depending on how expensive the house they're buying is?

That's one option, yes. As already stated several times the alternative is that the solicitors agree that a smaller than 10% deposit is acceptable.

greatcrested

Two options:

1) you add your savings to the deposit you receive on your sale, to make up 10% on your purchase

2) you ask your conveyancer to ask your seller's conveyancer to agree a smaller deposit eg 5%/whatever, to match the amount you are receiving

kjelyse

This is my understanding of how it works - with completely made up example numbers!

- You own a house (no mortgage) that you are selling for 200k.
- You are buying a house for £300k. You will need a mortgage of £100k, which (assuming a 10% deposit) means you need £10k in the bank before you exchange. 
- The rest of the money (the £200k) will pass up the chain upon completion, AKA the day that you actually buy/own the house. 

Slithery

kjelyse said:

This is my understanding of how it works - with completely made up example numbers!

- You own a house (no mortgage) that you are selling for 200k.
- You are buying a house for £300k. You will need a mortgage of £100k, which (assuming a 10% deposit) means you need £10k in the bank before you exchange. 
- The rest of the money (the £200k) will pass up the chain upon completion, AKA the day that you actually buy/own the house. 

All incorrect.