Paying remaining house deposit after exchange but before completion

codingtutor

Hi all

I'm in a situation where I have a 5% deposit but the bank's surveyors have downvalued the house. So I have to put in an extra 15,000 for me to meet the vendor's asking price.

As suggested by many on this forum, I'm now checking with another lender to see if they can value it differently. 

As a fallback, I want to consider if I can pay part of the deposit on exchange of contracts, and then the remaining either on or just before the completion date? 

The estate agent and solicitors have indicated that these days it is taking up to 3 months to complete a sale. If that is the case then it would give me 3 months to save the extra deposit that I now need. It will be a tough 3 months. 

Has anyone been able to do this before? 

Thank you

user1977

Not sure I follow, if you already have the 5% deposit. Are you confusing the (contractual) deposit i.e. what you pay on exchange, with the "deposit" meaning the rest of the equity you're putting into the price? You don't pay the latter until completion anyway. 

codingtutor

Sorry, yes exactly as you have put. 

I have the 5% deposit for exchange, and the rest I don't have right now but I will by 31 October 2021.  

My only two worries are my solicitors requiring the funds in my account for at least 6 months (for AML checks) and both vendors demanding an earlier completion date. 

My conveyancing process has not yet started, and the estate agent has only this week given a memorandum of sale to solicitors (3 weeks after the offer was accepted). 

Thank you 

user1977

codingtutor said:

My only two worries are my solicitors requiring the funds in my account for at least 6 months (for AML checks) and both vendors demanding an earlier completion date. 

They don't "require the funds in your account for at least 6 months", they just require to know the source of the funds and that it's yours. If recent deposits are e.g. demonstrably from your salary, that isn't a problem, it doesn't need to sit in your account for 6 months before it becomes yours.

codingtutor

Thanks, this is great to know. 

AdrianC

It's not "the vendor's asking price" you need to meet, it's your agreed offer.

You say conveyancing has only just started - so you haven't agreed with the vendor to exchange with only 5% security deposit, instead of the usual 10%? Are you hoping the lender will be advancing the difference, or are you hoping to exchange and complete simultaneously?

If you were relying on 95% LtV at the agreed offer, what's the LtV at the lender's valuation?

codingtutor said:

My only two worries are my solicitors requiring the funds in my account for at least 6 months (for AML checks) 

AML checks don't require the money to be there for six months. AML checks simply require you to prove the money is legitimate. I presume that you will be able to demonstrate that the money has come from your normal salary, or whatever other legitimate sources...?

codingtutor

Hi @AdrianC

The agreed offer is 230,000. The lender has valued it at 215,000 and has said they require a 5% deposit based on 215,000 and that I need to pay the difference myself of 15,000. 

I have not yet agreed with the vendor to exchange with only 5% deposit. I am hoping this would be possible. In fact, I had assumed (before it was downvalued) that if it's a 95% LTV then 5% is all I'd be needing to provide at the exchange. 

The shortfall will just be made up of my usual salary and a bonus from work (HR have provided me with a letter explaining why there is a bonus). 

Thank you

AdrianC

As said above, don't confuse the two meanings of "deposit".

Your 5% cash is equity.
The (normally) 10% exchange security is indeed a deposit in the usual sense.
Even if you were paying 30%, 50%, even 100% cash, you would normally only pay 10% on exchange.

So you have 5% exchange deposit at £215k, or £10,750...? Which means you need to borrow £219,250? Except the lender will view that as 102% LtV... That would fit your £15k needed to reach 95% of £215k, £204,250, max borrowing. But the vendor will see that as only 4.6%...

Doesn't sound like you'd have an issue getting that source of funds through the AML checks. But if you can raise £15k in three months that way, why do you only have so little equity now?

saajan_12

Equity:
Basically lender will lend 95% on 215k, ie £204,250. Its up to you to find the rest, ie £25.750 as your equity. 
This can be paid at exchange or completion or a bit of both - the lender doesn't care. 

Exchange deposit: 
You can negotiate with the vendor if they will accept less than the standard 10%. If you fail to complete, you would still be liable for the rest of the 10%. 

The AML checks just need you to show where you got the money from. For funds in your account > 6 months, they might not bother and assume they're part of savings, but that doesn't mean you can't demonstrate the source of more recent funds and use that. 

Re completion date, thats upto negotiation - are the vendors hoping to complete by the 30th Sept final stamp duty deadline? If conveyancing etc is ready across the chain in the next 2 months (it may not be) then would they be willing to wait another 2 months for you to save up, or would they pull out and look for another buyer? 

codingtutor

@saajan_12 thanks, understood. 

I'm planning to negotiate with the vendor if they will accept less than the standard 10% for exchange.  I mistakenly thought 5% would be fine for exchange but I will let my solicitor know. 

For the AML checks, it's from my salary, a bonus from work and a gift from my Brother.

For the completion date, I'm not aware that they are hoping to complete by 30th Sept final stamp duty deadline. I was told they don't have a chain and I'm a first-time buyer.  The estate agent and solicitor have said timescales will be up to 3 months and searches have not begun yet. 

The vendor is also expecting a delay because the estate agent had told them that I will look for another mortgage for a second valuation (this is something I want to avoid). 

Thanks again

grumiofoundation

codingtutor said:

@saajan_12 thanks, understood. 

I'm planning to negotiate with the vendor if they will accept less than the standard 10% for exchange.  I mistakenly thought 5% would be fine for exchange but I will let my solicitor know. 

For the AML checks, it's from my salary, a bonus from work and a gift from my Brother.

For the completion date, I'm not aware that they are hoping to complete by 30th Sept final stamp duty deadline. I was told they don't have a chain and I'm a first-time buyer.  The estate agent and solicitor have said timescales will be up to 3 months and searches have not begun yet. 

The vendor is also expecting a delay because the estate agent had told them that I will look for another mortgage for a second valuation (this is something I want to avoid). 

Thanks again

When are you planning to exchange? It's not going to be for a while so why only 5% at exchange ? Since you will now be putting down (from your point of view) a >10% deposit why not go with 10% deposit at exchange?


Why would you not want to get another valuation?