Exchange deposit

btcp

Somehow I overlooked a need for exchange deposit and wanted to clarify a couple of things. 

For the illustration purpose, say I am selling my house for 500k. I am buying a house for 800k. I need 10% cash at the exchange which is 80k. I assume my buyer will pay 10% deposit too, which is 50K and I will need to come up with 30k difference for mine. 

I was planning to use 500k from the sale towards my new house and get 300k mortgage. My understanding is that the mortgage will not hit the account until the completion date so technically I will pay 30k out of 300k needed before the completion. Do I understand my options correctly: 

1. I pay 30k cash to cover the deposit difference and plan for 270k mortgage instead of 300k. 
2. I pay 30k cash and get a 300k mortgage - but then I assume my solicitor transfer me 30k back on the day of completion? I could use these money for renovation. 
3. I can ask my solicitor to negotiate a lower deposit of 50k which will be passed from my buyer. No need to come up with additional cash and change my mortgage plans. 

pinkteapot

Yup - they're the options. With options 1 and 2 you would obviously need to have the £30k available to hand over (permanently for option 1, temporarily for option 2).

Thrugelmir

btcp said:

3. I can ask my solicitor to negotiate a lower deposit of 50k which will be passed from my buyer. No need to come up with additional cash and change my mortgage plans. 

Your solicitor can ask and see if the other party is happy to accept the amount. 

saajan_12

btcp said:

Somehow I overlooked a need for exchange deposit and wanted to clarify a couple of things. 

For the illustration purpose, say I am selling my house for 500k. I am buying a house for 800k. I need 10% cash at the exchange which is 80k. I assume my buyer will pay 10% deposit too, which is 50K and I will need to come up with 30k difference for mine. 

I was planning to use 500k from the sale towards my new house and get 300k mortgage. My understanding is that the mortgage will not hit the account until the completion date so technically I will pay 30k out of 300k needed before the completion. Do I understand my options correctly: 

1. I pay 30k cash to cover the deposit difference and plan for 270k mortgage instead of 300k. - yes, if you have the cashflow and can afford to increase your equity stake. 
2. I pay 30k cash and get a 300k mortgage - but then I assume my solicitor transfer me 30k back on the day of completion? I could use these money for renovation. - yes, if you have the cashflow. Upon completion, your solicitor would send back any monies from your sale after deducting monies used for your purchase, solicitors fees, agent fees etc, all detailed in the completion statement. 
3. I can ask my solicitor to negotiate a lower deposit of 50k which will be passed from my buyer. No need to come up with additional cash and change my mortgage plans. - yes, this is pretty common. 

Your options are correct, though No. 3 is the most common as the other two only work if you have the cashflow, 

The real issue would be if your buyer also has the same issue and was negotiating a deposit less than 50k as well. Usually at the bottom of the chain is a FTB who would have the full deposit because their non-mortgage money isn't tied up in a house. That gets passed up the chain, but if the % is too low further up the chain, people may need to top up in between. 

Eg if the chain was FTB > 250k house > 500k house > 800k house owner
FTB's 10% deposit is 25k, but that's 5% for the next link, and only 3.1% on the top house 

btcp

thanks for all the answers!

saajan_12 I don't have extra cash but I thought it's  mandatory to pay exchange deposit so was thinking how to come up with this amount. My buyer is FTB but I am still looking. So I should be able to get a full deposit from my buyer - hopefully they have it.

Soot2006

3. I can ask my solicitor to negotiate a lower deposit of 50k which will be passed from my buyer. No need to come up with additional cash and change my mortgage plans. 

>>the most common outcome! Our solicitor didn't even ask us if he had the "extra" cash for a 10% deposit (we did!); they just told vendor's solicitor it would be 7% (passed up from sale) and it never came up again ...

btcp

Soot2006 said:

3. I can ask my solicitor to negotiate a lower deposit of 50k which will be passed from my buyer. No need to come up with additional cash and change my mortgage plans. 

>>the most common outcome! Our solicitor didn't even ask us if he had the "extra" cash for a 10% deposit (we did!); they just told vendor's solicitor it would be 7% (passed up from sale) and it never came up again ...

sounds promising! that's a lot of extra money to come up with. 

GDB2222

You can always ask your buyers for a bigger deposit.

btcp

GDB2222 said:

You can always ask your buyers for a bigger deposit.

Why would I? If a reasonable standard is 10% it doesn’t sound fair. 

AnotherJoe

btcp said:

Somehow I overlooked a need for exchange deposit and wanted to clarify a couple of things. 

For the illustration purpose, say I am selling my house for 500k. I am buying a house for 800k. I need 10% cash at the exchange which is 80k. I assume my buyer will pay 10% deposit too, which is 50K and I will need to come up with 30k difference for mine. 

I was planning to use 500k from the sale towards my new house and get 300k mortgage. My understanding is that the mortgage will not hit the account until the completion date so technically I will pay 30k out of 300k needed before the completion. Do I understand my options correctly: 

1. I pay 30k cash to cover the deposit difference and plan for 270k mortgage instead of 300k. 
2. I pay 30k cash and get a 300k mortgage - but then I assume my solicitor transfer me 30k back on the day of completion? I could use these money for renovation. 
3. I can ask my solicitor to negotiate a lower deposit of 50k which will be passed from my buyer. No need to come up with additional cash and change my mortgage plans. 

These days this is the norm. Its what happened to me for my deposit on my purchase a couple months ago, and my buyers did the same with their deposit to me. 10% is just "custom" but sums have got so large few have that cash floating around.

GDB2222

btcp said:

GDB2222 said:

You can always ask your buyers for a bigger deposit.

Why would I? If a reasonable standard is 10% it doesn’t sound fair. 

If your sellers won't accept less than 10%, you might have to do something to raise the extra £30k. One solution might be to ask your buyers to help out. Or the sale doesn't go ahead. 

If everybody in the chain just passes along the deposit from the FTB at the start of the chain, it might only be 3-4% at the top of the chain. 

Anyway, your sellers may agree to less than 10%. So, it may not be a problem. Personally, I'd be rather reluctant to accept less than 10%, but maybe I'll change my tune when I come to sell.