No deposit on exchange

Esme84uk

We are due to exchange contracts on Monday. It has been along time coming, and due to the housing market in the area we are looking to buy in we are temporarily going into a rental. Our buyers as FTBs and they are getting a springboard mortgage and as such they have no deposit. However, when I spoke to the estate agent yesterday she advised that due to the nature of the mortgage there would be no exchange deposit and as such if they could not complete we would have to.sue for the equivalent of the deposit, but as they have no deposit, they have no assets. Ee have queried this with our solicitor and she has not been made aware of this, however, the buyers solicitors are horrific and take about 4 weeks to respond. We have asked for 4 weeks from exchange to completion, as we will need to secure a rental and understandably we are not prepared to sign for a tenancy until we have exchanged.
We have gone back to our solicitors and said we are not prepared to exchange with out some form of deposit, we are happy for it to be less than 10%, but want it to cover the 6 months rent we will be liable for.
I am wondering if anyone has encountered these issues with springboard mortgages?

Gentoo365

I know next to nothing about these mortgages but I do know that in some cases a lender can release some funds earlier to the solicitor. 
You could take a risk here, as you are not having to put a deposit on another purchase. 
Given the fact your buyer cannot provide a deposit, and their families money is seperated (for the banks benefit, not yours) they probably have no money to pay any 'costs' if there is an issue. 

Logically I would think this would happen The bank would provide an advance to the buyers solicitor, and that amount will be no more that the amount that the buyers family have given the bank as security. 
In the unlikely event that the exchange takes place and completion does not (and is not just delayed by a few days) your solicitor takes some reasonable costs and returns the rest. Then the bank deducts the amount you retain from the 'security' deposit from the family.
That is how I would arrange it if I were a bank, but I am not a bank so they may just state that there is no deposit and their customer has to find a seller willing to accept this.

EDIT

As I was interested in how this all works I have looked at the T&C of the deposit account used by the family member providing a security, it does not cover this situation, only missed payments. So the bank does not do what I would do if I were a bank.

https://www.barclays.co.uk/content/dam/documents/personal/mortgages/BAR_9912788_UK_Lo.pdf

Thrugelmir

Esme84uk said:

I am wondering if anyone has encountered these issues with springboard mortgages?

The issue appears to be your buyers not (Barclays ?) springboard mortgages per se.  Up to you whether you are happy to proceed on the basis of zero deposit on exchange.  

Esme84uk

The issue appears to be your buyers not (Barclays ?) springboard mortgages per se.  Up to you whether you are happy to proceed on the basis of zero deposit on exchange.  

Yes I agree, although I imagine alot of people using a springboard mortgage will end up being in a similar situation when it comes to exchanging.

To be honest we have had a few problems with the buyers and their solicitors and so I'm not prepared to exchange without any deposit, as we would then end up being liable for our mortgage and 6 months rent.

I'm quite annoyed that we weren't made aware of this in September when we accepted the offer, as had we known we would either not accepted or would have had a contract drawn up specifying that they would pay a set amount as a deposit.

Esme84uk

Gentoo365 said:

EDIT

As I was interested in how this all works I have looked at the T&C of the deposit account used by the family member providing a security, it does not cover this situation, only missed payments. So the bank does not do what I would do if I 

Yes I read these yesterday.
I understand that they have to provide protection to the family member, but by not paying an exchange deposit there is no protection for the vendor, and in the current climate with so many job losses etc I can't imagine anyone would expose themselves to that level of risk.

Springboard mortgages are ok in practice, but if more people start having these types of issue at the point of exchange, I would imagine that it will get to the point people will be loathed to accept an offer with this mortgage in place.

greatcrested

This is a matter for solicitors, not estate agents.

Just make clear to your solicitor what you position is

* accept zero deposit and take the risk

* insist on 10%

* agree to some other minimum amount eg 5+%

Then leave your solicitor to do their job.

davidmcn

Esme84uk said:

as they have no deposit, they have no assets

They'll have some assets, and if they've qualified for a mortgage then presumably they'll have an income. People don't generally allow themselves to be put on the hook for big liabilities by breaching the contract, whether or not they've already paid a deposit. To put things in perspective, we don't (usually) have contractual deposits in Scotland, but everyone still does their best to avoid being sued for potentially thousands by being in default.

AdrianC

Esme84uk said:

We have asked for 4 weeks from exchange to completion, as we will need to secure a rental and understandably we are not prepared to sign for a tenancy until we have exchanged.
We have gone back to our solicitors and said we are not prepared to exchange with out some form of deposit, we are happy for it to be less than 10%, but want it to cover the 6 months rent we will be liable for.

Umm, that sounds like you're planning on using the exchange money to pay for your rental deposit and up-front rent...

You do know that you wouldn't normally get the exchange deposit released to you until completion, right? After all, if YOU pull out, or the sale is frustrated by some external reason, that money goes straight back to the buyers.

eddddy

AdrianC said:
Umm, that sounds like you're planning on using the exchange money to pay for your rental deposit and up-front rent...

I wouldn't have said so. It just means if the buyers back out and don't complete, the 6 months rent paid in advance (from their own savings) by the OP would be wasted. 

GDB2222

If I understand the springboard mortgage, it depends on bank of mum and dad. They deposit money with the lenders, and the lenders have a charge on it for the mortgage. If so, I'd have thought a personal guarantee from mum and dad for the contractual deposit ought to suffice. The kids won't default and land mum and dad in it.

Thrugelmir

Esme84uk said:

The issue appears to be your buyers not (Barclays ?) springboard mortgages per se.  Up to you whether you are happy to proceed on the basis of zero deposit on exchange.  

Yes I agree, although I imagine alot of people using a springboard mortgage will end up being in a similar situation when it comes to exchanging.

Majority of people are likely to have a deposit of some description. Even if it's not the full 10%.