house buyer offering less than 5% deposit

Thrugelmir

EasyLay said:

AskAsk said:

pinkteapot said:

AskAsk said:

they would not be able to get a mortgage if they don't have 10% deposit.

That’s what I thought. It doesn’t make sense. Unless family are gifting cash for the purchase and won’t hand it over till just before completion for some reason? 

I’d ask the EA to have a chat with the buyer to understand why they don’t have 10% but can still get a mortgage.

even with a 10% deposit, people may still struggle to get a mortgage, so with even less than 5%, the bank will just laugh at them.  you can only buy properties with low deposit if it is a new build as far as i am aware.

The house isn't a new build. We were told the buyer's had arranged their mortgage weeks ago. It seems that with the mortgage lender wanting to value our house, and this reduced deposit, maybe the mortgage isn't quite as finalised as we were led to believe.

Being FTB's probably assuming (incorrectly) that obtaining an AIP guarantees them a mortgage. 

Mickey666

Yes, in that example ‘deposit type 1 really relates to how much equity they have (or will have), which is completely different to the deposit asked for on exchange, which is really just an advance payment.

The problem with 10% deposits on exchange is that it is a very large amount of money that most people (FTBs excepted) will not have because their funds are tied up in the equity of their own property.  It’s not a question of affordability it’s a question of ready cash. 

I would worry less about the % than the actual amount being offered.  In this case what does 3.75% actually equate to and does the OP think it’s enough to mean the buyers are serious about the deal?
I’ve never paid a 10% on exchange when buying a house and have always negotiated a reduced amount with the seller based on what ready cash I had available at the time.  The alternative would have been to get a short term loan, which has always seemed a waste of money to me.  10% deposits are only a convention, not a legal requirement, and as such it’s perfectly reasonable to negotiate.

AskAsk

hazyjo said:

AskAsk said:

EasyLay said:

AskAsk said:

pinkteapot said:

AskAsk said:

they would not be able to get a mortgage if they don't have 10% deposit.

That’s what I thought. It doesn’t make sense. Unless family are gifting cash for the purchase and won’t hand it over till just before completion for some reason? 

I’d ask the EA to have a chat with the buyer to understand why they don’t have 10% but can still get a mortgage.

even with a 10% deposit, people may still struggle to get a mortgage, so with even less than 5%, the bank will just laugh at them.  you can only buy properties with low deposit if it is a new build as far as i am aware.

The house isn't a new build. We were told the buyer's had arranged their mortgage weeks ago. It seems that with the mortgage lender wanting to value our house, and this reduced deposit, maybe the mortgage isn't quite as finalised as we were led to believe.

i don't believe any bank will lend to a first time buyer with a deposit of 3.75%.  they may have misunderstood what the mortgage offer is.

I think you're getting confused about the term "deposit" .

It's not the deposit to get a mortgage (currently usually a min of 15%). It's the deposit paid up the chain to exchange.

the OP needs to find out why the lack of deposit on exchange if the money is there but not available until completion.

wilfred30

So they can't afford another 1.25% deposit but they can afford to buy white goods specifically measured to fit a kitchen they might not ever own ..... duh!

EasyLay

Mickey666 said:

I would worry less about the % than the actual amount being offered.  In this case what does 3.75% actually equate to and does the OP think it’s enough to mean the buyers are serious about the deal?

It amounts to £15k. If we pay a 10% deposit on the property we're buying and the deal falls through we will lose considerably more than that, even subtracting the money we get from our buyer.

kinger101

eddddy said:

kinger101 said:

pinkteapot said:

kinger101 said:

What deposit did they say they'd make when they offered?  I'd want them to stick to this.  

Bought and sold many houses and deposit size has never once been discussed at point of offering...

It's been a discussion point in all four transactions I've been involved in.  EAs routinely ask buyers how much deposit they have and then to provide evidence before vendor accepts STC.  I've also been asked to state how much deposit I'd have on houses I've offered on unsuccessfully or later withdrawn from (another six).

It's standard industry practice to ensure the buyer is credible, and assess the merits of their offer against any other.  There's a possibility this hasn't been done here, leaving OP with a flaky buyer.

It sounds like you're confusing 2 different types of deposit... An example might help...


Say you're buying a £200k house - with a £150k mortgage.

• Deposit type 1) The EA will ask you how much 'deposit' you have. The answer is £50k (or 25%)

• Deposit type 2) On exchange of contracts, you normally pay a 10% 'deposit' - so that's £20k. This is what the OP is asking about.

In the above example, you would typically pay £20k on exchange - than pay another £30k plus £150k from the mortgage on completion.

The OP is talking about "Deposit Type 2" - and wondering why the buyer is offering 3.75% instead of the typical 10%.

Yes, there are two types of deposit.  But LTV gives an indication of whether they can stump up the deposit on exchange.  If it's 95% LTV, you'd have to accept they may only have five percent.  If it's 80% LTV, I'd be wanting the full 10% from a FTB.  

So it's not an irrelevant question.

GDB2222

Personally, I would not accept less than a 10% deposit. As others have said, the buyers will need at least 10% deposit for the mortgage, so they might as well put it down now on exchange. In practice, if all they can scrape together is 3.75%, they won't be able to complete, and they are going to be a massive problem.

In fact, I'd be completely put off these buyers, and, unless I received a really frank explanation backed, I'd remarket the property.

Mickey666

EasyLay said:

Mickey666 said:

I would worry less about the % than the actual amount being offered.  In this case what does 3.75% actually equate to and does the OP think it’s enough to mean the buyers are serious about the deal?

It amounts to £15k. If we pay a 10% deposit on the property we're buying and the deal falls through we will lose considerably more than that, even subtracting the money we get from our buyer.

Well, £15k seems like a considerable sum of money to me and suggests that the buyers are not fickle if they’re prepared to put that much money on the line.   As for the deal falling through, deposits are only paid on exchange and most deals fall through before then.  Very few deals fall through after exchange, which is when the deposit is required.  Before exchange anyone can walk away with no financial implications, so deposits are irrelevant in that respect.

Having said that, it does seem strange that a FTB seemingly cannot stump up a 10% deposit.  I find it hard to believe thay are getting a 96.25% mortgage these days.

Madmel

When we sold late MiL's flat some years ago, on the verge of exchange, the buyer claimed not to know that she needed to pay a deposit.  Far from being a FTB, this was an elderly lady going into a retirement property.  Her own sale fell through months earlier, so she part-exchanged her house.  She asked if she could exchange, move in and then complete, to which we just fell about laughing and said no.  Then our solicitor rang and said there was another issue in that she "didn't realise" she would have to pay money over at exchange.  The solicitor was brilliant; she recommended simultaneous exchange & completion as we were the end of the chain.  We did wonder about re-marketing but were so fed up that we just wanted the money and took the path of least resistance.  In the end, it did go through on the same day.

Atlas234

The buyers may have something like help to buy Isa's with the 25% bonuses making it up to 5% total for the mortgage deposit and as you can't get the bonus until everything completes they wouldn't have it for exchange. But it does seem very strange given that I don't think 5% mortgages are even available at the moment?