Can someone please explain the process of paying a deposit prior to exchange?

[ReallyNotAMorningPerson]

Being daft, but reading conflicting info on here.

Someone please come and pat me on the head and tell me I've misunderstood.

We are gearing up to exchange shortly on a house. I just read on another thread that you usually have to pay your deposit (ours is 10%) a week to a few days before you exchange.

Huh?? We definitely do not have a spare £16,000 in the bank. We would struggle to find £1,600.

Surely this can't be right? We will have our deposit when we sell our house, but not a moment before.

[QforCucumber]

I think it's dependent on the solicitors, woth our most recent purchase we paid deposit to the solicitors a day or 2 before we were due to get the keys - but we had to have proof of the deposit to show them. Once transferred they then authorised the mortgage to go ahead and then solicitors transferred all of the funds to the seller.

[QuiteLikely5]

How on earth are you paying your deposit if you don't have it then?

Of course the solicitors need it in their bank before they complete, they aren't actually going to pay it for you and send you a bill.........

Don't you have it?

[dontcallmelen]

Really - your not the only one, never heard of this either been a while since
we bought or sold though, was thinking errr when did become the norm?

[Haggismcbaggis]

There can usually be an agreed mechanism whereby the deposit flows up the chain. Is the property you are buying worth less than the one you are selling? Normally if it's a more expensive house you would need to top up the flowing deposit or agree in your purchase contract that your deposit is less - say 5%

[amothersplaceisinthewrong]

I too seem to remember that the bottom of the chain person (ie the first time buyer) gives their deposit to solicitor and it is passed up and topped up if necessary?

[HmmAnOxfordComma]

Yes, the deposit normally flows up the chain on exchange from the buyer at the bottom. So, by the time you get to the top of the chain, the deposit would potentially be a lot smaller than 10%.

Sometimes you will get a vendor or their solicitor who will insist on a full 10% rather than 6% or whatever, so you would need to get your hands on the difference from somewhere. You would normally be explicitly told if this was the case, however.

[GiddyOnZackHunt]

Yes pp are right that you should be getting the deposit from your buyers which you top up to 10% or you have to agree with your sellers to pay less than 10%.
Our sellers wanted the full 10% but we were able to muster it up.

[fiorentina]

We had to find the 10% required in cash for our deposit. Some came from our buyer, the rest from us and as our be house was over double the price of the old one, that was a fair bit more. Will you have sufficient that way? I would speak to your solicitor asap. We had to lend my MIL her deposit at one time as she didn't have sufficient available quickly for her deposit.

[Spickle]

It is quite normal for the first person in the chain to pay the 10% and then this is passed up the chain with or without top ups. Most people have their money tied up in the house so you wouldn't be expected to find £16k unless you backed out of the transaction after exchange. Have a chat with your solicitor to clarify but really it shouldn't be a problem at all.

[ReallyNotAMorningPerson]

Thanks all. I was starting to panic though until I got to spickle's post.

What spickle says is quite different from what quitelikely is saying, for example.

Our deposit money is indeed tied up in the house. I was totally unaware of this idea that you had to have liquid funds for your deposit. I still don't understand.

Who is right - spickle or the other posters?

prays it's spickle

[ReallyNotAMorningPerson]

N.B. We're in a chain of four, we're number 2. The house we're buying is more expensive than the one we're selling.

[GiddyOnZackHunt]

spickle is right unless you're one from the top and reasonable but the top are grasping bastards

[ReallyNotAMorningPerson]

Phew thanks giddy. I'm still confused though why quite a few posters did have liquid funds (and handed them over several days before exchange).

Surely loads of people have their deposits tied up in their house?

[Dugongdog73]

We've recently moved and were second in the chain and had no cash outlay to pay up front - in fact apart from the solicitor mentioning tha our buyer's deposit would just move up through the chain when we first instructed him, there was no further discussion of deposits at all. Like others have said, I think your sellers could demand a higher deposit if the first in the chain are only paying a very small amount, but generally the understanding is that money is tied up in the house and there would,only be an issue if you pulled out.

[Spickle]

If you want to pay a deposit (and can), then some people prefer to do that. If you back out after exchange you would have to stump up the deposit as this is when the transaction is binding. It is true that the top of the chain could insist on receiving the full 10% but their solicitor would probably advise that this may not be possible if not all parties in the chain have the ready funds. I'm a conveyancing assistant if that helps!

[addictedtosugar]

Well, when we moved to a house 2.5 times the value of the one we were selling, we didn't have to pay any £ up front. I assumed it was taken the equity in the house was the deposit, but that doesn't really add up.
The only time I've paid a cheque to the solicitor was when I was a first time buyer.

[neepsandtatties]

It moves up from the bottom of the chain. So imagine a chain of 3 houses.

House 1 is worth £100,000 (being purchased by a first time buyer)
House 2 is worth £200, 000
House 3 is worth £300,000

First time buyer transfers funds (hopefully well ahead of exchange!) of £10K deposit to his solicitor. On day of exchange, that £10K is 'moved up the chain' and acts as the deposit for the House 2 and House 3 buyers (although I think it actually stays in the first solicitor's bank account, apparently there is some kind of honour among solicitors, and all the money is 'balanced' on completion). The only problem comes if House 3 buyers don't view £10K as sufficient deposit for their £300,000 house and insist on the traditional 10%, in which case, House 3 buyers need to find the extra £20K, (and will therefore likely insist on House 2 buyers paying their extra £10K).

So yes, there is a chance that you could be asked to stump up some extra cash, but it's unlikely the top of the chain would actually insist on this if it meant the whole chain would collapse.

[HmmAnOxfordComma]

There's no inconsistency - most people have said 10% of the bottom priced house is sufficient but occasionally some people at the top of the chain insist on more - but you should already have been explicitly told if this is the case.

Of course, if the 'less than 10%' is used going up the chain, and the sales (chain) collapse after exchange but before completion, you will HAVE to find the difference between what you've 'sent' as a deposit and the full 10% in the contract to compensation your vendor (as does your buyer to you).

IIRC, we did have to find extra cash the last time we moved - we were selling (an expensive house) to a first time buyer with a 5% deposit but our vendor wanted 10%. However, we were moving downmarket, so the difference wasn't quite 5%, more like 3.5% and we had that in savings.

[Roseandbee]

I'd not even considered this, I think bottom of our chain is 70,000 & top is 510,000 so wonder if we will encounter problems

[GiddyOnZackHunt]

We were the people buying house 3 in neeps scenario and we did indeed come up against the vendors who insisted on their 10%. We had savings that we were putting into the house so we were able to cover the gap.

[ReallyNotAMorningPerson]

Ah okay. That's a lot clearer now.

Thanks all. (And great to be reassured by a conveyancing assistant Spickle...!)

I thought I was going to have to learn the guitar ASAP and go out and busk in a desperate attempt at raising funds

I can put the guitar away now