New build exchange deposit

ps2mint

Hi all,

Buying a new build property. Hopefully we are in a position to exchange shortly. We are aware of the 10% deposit we have to pay the developer on exchange of contracts.

This deposit is currently tied up in the sale of our current property.

Does anyone know how exchange works in this situation? Or will will have to exchange and complete on the same day because of this?

Advice much appreciated!

Many thanks

Flick85

Have you got a buyer for your existing property?

If you do have a buyer then you're at the top of a chain, so it will work just like the purchase of any property in a chain - that is, your buyer's exchange deposit will go up the chain and be used as part of your exchange deposit on the new build. It's likely that their 10% exchange deposit of your sale price won't be as much as the 10% exchange deposit you need to give to the developer, so you may need to top up the exchange deposit with cash, or convince the developer to accept a lower exchange deposit on the basis that when you complete you'll be paying the remaining from your sale (i.e. with mortgage and the outstanding equity in your current property).

If you're not in a chain, then to exchange contracts you'll probably need to provide the 10% exchange deposit in cash. Again, you might be able to convince the developer to accept a smaller exchange deposit. On new builds, they will rarely do exchange and completion on the same day, unless the house is already built! If you're buying off plan (i.e. house not yet built) then normally they will push for exchange within 28 days or reservation, and completion when it's ready which could be months afterwards.

If you're in a chain, it's a benefit to you to push for exchange earlier because your buyer will be contractually obliged to go through with the purchase and wait patiently for your house to be built. If you don't exchange, then there's a bigger risk your buyer will become impatient and pull out as might find another property in the interim. I've heard stories of developers being pretty ruthless when the bottom of a chain falls through before exchange, by giving the purchaser just a week to get a sale secured before making the plot available again for others to reserve. At that point, you lose your reservation fee, any legal fees already encountered, any deposits or full costs paid for upgrades etc. So, unless the house is very near completion, and you're not in a chain, exchanging and completing on the same day for a new build is really not a great plan.

eddddy

ps2mint said:

This deposit is currently tied up in the sale of our current property.

Assuming you're selling your current property at the same time, your buyer will pay a 10% deposit.  You can use that money as the deposit on your purchase.


(Have you got a buyer for your current property? If so, have they agreed to exchange contracts and complete on the same terms and the same timescale that the developer requires from you?)

ps2mint

We have a buyer and are hopeful to exchange this week.

Thank you for all of the replies. Very helpful.

Princessa_2

We exchanged contracts with both our buyer and new build developer about three weeks ago on the same day. Our old house completed on Friday so we got the funds of our sale in our account and paid the 10% deposit the same day.