Deposit on contract exchange

marksmen10

Hi, we are currently in the process of buying & selling. We have sold at £295000 and are buying at £355000, so a 60 k difference. There is no mortgage and will be made up of cash. One of the conveyancing questions was a payment of 10% of the purchase price would be paid at contract exchange. I assumed this would be 10% of 60k , but was told it was 10% of 355000. Is that right ? as doesn't seem right to me. Thanks Mark.

maisie_cat

Usually a seller uses their buyers deposit for their own purchase so although the actual deposit is 10% of £355k most of the cash comes from the buyer and the cash amount required to make it up will be £6k.
If the prices change between now and exchange they'll all change

Sapindus

The purchase price is £355,000. 10% of the purchase price seems fairly clear to me, not sure if I am missing something.  it's completely irrelevant to the person you are buying from, how much you are selling your existing house for.  Supposing you were buying a house for less than the house you are selling?

annetheman

I had a similar question albeit in a slightly different situation. Long story short I was told that in most cases the deposit "moves up the chain", so that 10%* of the sale at the bottom of the chain goes to the next link, which goes to the next link, which goes etc etc.

So for your example, it would be the 10% of 295k that would "move up the chain" - also it was explained to me that it isn't "given" to anyone, just sort of held by the solicitors like in escrow; it is just a security. IF the unthinkable happens and the sale does not complete, you would owe the 10%* of 355k to your seller and would need to add additional funds to pay that.

If all completes as planned, then the 10% of 295k is added to the rest of your cash (in your case) to make up the 355k paid on completion to the seller's solicitor.

Edit to add: I was also told that generally, most solicitors in the chain will agree to accept whatever the bottom deposit is, because it's less hassle, even if it is less than "their" sale's deposit amount. It is rare for the buyer next up to be asked to make up the rest of the 10% (of 355k, for example) but you should be prepared to and your solicitor should warn you if this is going to happen. Reality is most peoples' deposits are tied up in equity released on completion so it isn't always possible, hence just using the first exchange's deposit is the most common scenario.

*or whatever the deposit amount is agreed for the exchange. Generally it is 10% but a different amount can be agreed by all parties.

I hope that makes sense! There's probably a nice Youtube animation somewhere.

saajan_12

marksmen10 said:

Hi, we are currently in the process of buying & selling. We have sold at £295000 and are buying at £355000, so a 60 k difference. There is no mortgage and will be made up of cash. One of the conveyancing questions was a payment of 10% of the purchase price would be paid at contract exchange. I assumed this would be 10% of 60k , but was told it was 10% of 355000. Is that right ? as doesn't seem right to me. Thanks Mark.

Both are right.. sort of.. 

As far as your seller is concerned, they get 10% of 355k, so £35.5k. 
From your perspective, you stump up 10% of 60k and you pass on 10% of 295k that your buyer paid you. 

So provided everyone in the chain has the same exchange date, same completion date, same deposit %, it all works out. You just find the 10% of 60k = 6k in cash and the solicitors work out the rest. However sometimes some parties negotiate a lower deposit instead of 10%, or if there's a dates difference, then there may be soem tweaks needed. 

eddddy

To summarise..

• You will receive a 10% deposit on your house sale = £29,500 

• You can use that £29,500 as part of your purchase deposit

• Your seller might accept an 8.3% deposit (i.e. £29,500) if you ask them - in that case you don't have to provide any more cash at this stage

• But if your seller insists on a 10% deposit, you will have to add £6,000 of your own cash to the £29,500 - to make a total of £35,500

(This assumes you are doing the usual approach of exchanging contracts on your sale and purchase at the same time. If you're not, that's a whole different can of worms.)