Deposit of exchange

kjelyse

Oh!  Sorry about that. Where did I go wrong?

EDIT : My bad, I've found a guide via Google that explains it!  Apologies for jumping in with a false understanding of how it works.

ThePants999

Awakeatnight said:

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?

That's quite a... surprising set of questions and claims.

Yes, people generally do have £30K in liquid funds, in their current account, when about to buy a £300,000 house. It wasn't just sitting there - it was saved up over the course of years specifically in order to buy a house. Naturally, it will have previously been in some form of investment or savings account, and will have been transferred to their current account in preparation for the actual purchase.

If you're selling a £150K house to buy a £300K house, then yes, it shouldn't come as a surprise that you need to funnel some more money into this yourself. Otherwise, people could buy expensive houses with next to none of their own money simply by buying a cheap house and trading up!

princeofpounds

Yeah the confusion is common because deposit is used for two things that slightly overlap.

1) The deposit for exchange is an amount, normally 10%, that is paid from buyer to seller's solicitor to provide security (i.e. a source of compensation) in the event that completion fails. It's basically used to ensure that the buyer doesn't agree a contract and then disappear.

2) The mortgage deposit is the amount of equity (from cash or the proceeds of a former sale, or whatever) that a buyer puts into a house purchase, with the rest of the funds being made up from mortgage debt.

On completion, equity under definition 2) will include the funds paid over in advance under definition 1).

As greatcrested says, it is quite common for a lower amount than 10% to be agreed for deposit 1, as sellers recognise that not everyone will have access to ready cash at the point of exchange. However, the liability is still usually set at 10%, so the vendor can still try to chase a buyer who fails completion. It's just harder for them to enforce as the money isn't sitting in their own solicitor's bank account.

Awakeatnight

ThePants999 said:

Awakeatnight said:

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?

That's quite a... surprising set of questions and claims.

Yes, people generally do have £30K in liquid funds, in their current account, when about to buy a £300,000 house. It wasn't just sitting there - it was saved up over the course of years specifically in order to buy a house. Naturally, it will have previously been in some form of investment or savings account, and will have been transferred to their current account in preparation for the actual purchase.

If you're selling a £150K house to buy a £300K house, then yes, it shouldn't come as a surprise that you need to funnel some more money into this yourself. Otherwise, people could buy expensive houses with next to none of their own money simply by buying a cheap house and trading up!

It seems like the poster after you disagrees. I saved like mad for my first property, 5% deposit acheived but there was never any mention of a deposit for exchange. Now I'm on the chain, my money is sitting in the equity of my house...not in my bank account. 

Drawingaline

We are selling for 235, and buying for 410. We have 120 equity and are increasing our mortgage. We don't have 41k in the bank. Tbh we don't have much in spare cash, we have enough for the fees. I have already mentioned it to my solicitor, she seems fine with it.

If we had to wait until we had 41k we would never move 🤷 in fact I imagine not many people would be able to upsize like that.

Awakeatnight

princeofpounds said:

Yeah the confusion is common because deposit is used for two things that slightly overlap.

1) The deposit for exchange is an amount, normally 10%, that is paid from buyer to seller's solicitor to provide security (i.e. a source of compensation) in the event that completion fails. It's basically used to ensure that the buyer doesn't agree a contract and then disappear.

2) The mortgage deposit is the amount of equity (from cash or the proceeds of a former sale, or whatever) that a buyer puts into a house purchase, with the rest of the funds being made up from mortgage debt.

On completion, equity under definition 2) will include the funds paid over in advance under definition 1).

As greatcrested says, it is quite common for a lower amount than 10% to be agreed for deposit 1, as sellers recognise that not everyone will have access to ready cash at the point of exchange. However, the liability is still usually set at 10%, so the vendor can still try to chase a buyer who fails completion. It's just harder for them to enforce as the money isn't sitting in their own solicitor's bank account.

Thanks. So to put "On completion, equity under definition 2) will include the funds paid over in advance under definition 1)." another way ... your equity in the home you're selling can be used as the deposit?

hazyjo

ThePants999 said:

Awakeatnight said:

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?

That's quite a... surprising set of questions and claims.

Yes, people generally do have £30K in liquid funds, in their current account, when about to buy a £300,000 house. It wasn't just sitting there - it was saved up over the course of years specifically in order to buy a house. Naturally, it will have previously been in some form of investment or savings account, and will have been transferred to their current account in preparation for the actual purchase.

If you're selling a £150K house to buy a £300K house, then yes, it shouldn't come as a surprise that you need to funnel some more money into this yourself. Otherwise, people could buy expensive houses with next to none of their own money simply by buying a cheap house and trading up!

Not me. Last sold a £515k house and have never had savings (nothing more than a few grand anyway). Started with a relatively small gifted deposit. Moved 8 times!

Awakeatnight

When you say 'small gifted deposit' what do you mean? One that came up the chain?

Flugelhorn

I have never moved a "deposit up the chain" - always produced the 10% or one occasion agreed to 5% .
 When my parents moved in 1990 they hadn't got it, so they borrowed it from me and then I was paid back on completion (both houses were pretty well the same price).  You need to clarify with your solicitor otherwise they just say can you let me have X by next week

hazyjo

Awakeatnight said:

When you say 'small gifted deposit' what do you mean? One that came up the chain?

Presuming you mean me, I mean when I was 21, my parents gave me 3 or 4 grand as a deposit. Since then, I've always moved money up the chain.