Anyone who knows about mortgages and selling houses - help!

[Romitofrincone]

We are buying a 800k house. We were clear from the outset with the estate agent that our deposit would be 2.5% of the total price. We are buying as part of a shared equity scheme with my employer. My employer will own 50% of the property and so will we and our deposit is 5 percent of our mortgage and 2.5% of the total value of the house.

Now, after the searches have been done, and we are talking draft contracts, their lawyers have started to dispute the deposit amount saying it should be 10 percent.

The estate agent led us to believe verbally at the time the offer was accepted that our deposit level was ok. We wrote it on the offer form that was shared with the estate agent and we assumed the sellers, and sent bank statements showing the deposit funds were in our account.

Ultimately if the sellers lawyers start demanding a bigger deposit we have to walk away. Am really panicking this is going to happen though I don’t see how this would benefit the seller - our mortgage offer has been approved, my employer is a large organisation, and we have made a good offer on the property that had been on the market for some months.

Can anyone advise?

It’s not at all unusual. Many people put no actual cash deposit down on exchange if they already own a property as the entire deposit is being funded by the equity in their current property, plus what comes up the chain.

The only time I’ve handed over a deposit is as a FTB, since then every move (and there have been plenty) has just been a house equity deposit.

I also work in the industry and this is normal.

Thanks so much for useful suggestions everyone who has shared these, lots of things I didn’t know and sounds like there are a few options.

I've recently bought another btl property. On the contract the vendor put we had to pay 10 percent deposit. I just insisted we exchange and complete, on the same day. If as a buyer we had pulled out after exchange then the vendor can sue the buyer for the 10 percent deposit. I think it's quite frequently used. If the 10 percent is paid across to the solicitor who holds it until completion or default of completion.

I almost had this disaster, we were using a help to buy isa as our deposit, but you only get the gov part of that at completion. We told EA, and our solicitor that repeatedly, but may as well have been talking to the wall as when exchange was about to happen everyone was still expecting 10% to be magicked up from somewhere. In the end I managed to scrabble around and find just enough to cover it by both of us maxing out our overdrafts and spending the rent money too, hoping that we'd get the isa funds before the rent was due, it was bloody nerve wracking. Got a cheque from the solicitor after it was all over and their fees had been paid etc.

Can you either a) get a bridging loan or b) exchange and complete on the same day?

Being stupid but I don’t understand about brushing loans. Would this not be something we would take if we were waiting for funds to come through from something else to pay the bridging loan back? That’s not the case here. We’ve sold our property - we made 50k which covers the deposit as discussed, stamp duty and legal and removal fees - so we don’t have any more money to come.

Bridging not brushing!

It sounds like the estate agent didn’t communicate this clearly with the seller. A big practical issue for the seller is if they are expecting an 80k deposit to help fund their deposit and you are offering 20k, if they can’t persuade their seller to drop (and 2.5% is off market low) then they have to make up 60k in cash to bridge the difference.

I don’t get that though NowYouSee. If they complete with us before they complete their purchase they will have their deposit - I know for a fact they bought their house in 2010 for 650k so they should be making 150k profit. So unless they’re buying a house that costs 1.5m and I don’t think they are then they’ll have their deposit?

OP I work in this field and have five for 15 years. You're getting some bad advice here!

Speak to your solicitor, it's nothing to do with the agent (or the seller to a certain extent). I can't remember the exact term but there's a way to exchange with 0 deposit if all in agreement.

I'm not familiar with your shared ownership employer arrangement. But in a standard SO. Say you buy 50% at 400k, you will need to pay your deposit as a % of your 400k based on the LTV of your mortgage. That's why this is a solicitor question not an agent.

It’s standard contractual terms for 10% deposit on exchange day, which you could lose if you pulled out after exchange.

You are confusing two things.
you have a deposit, and the bank will lend you the rest. This is your loan to equity value (in your case, 45% loan, however, depending on how ownership works (dors your employer own part of it) it might be a lot more of you only own half the house, and the bank has a lien over only half). The bank will have to be comfortable with this, and it will affect availability and interest rate offered. However, I am assuming you have a mortgage offer.
the other part is the amount you hand over at exchange. You will forfeit this if you pull out after exchange. This is an arrangement between you and the seller. 10% is typical, and will be deducted from the purchase price. It is unlikely the seller will budge on this, and you might need a small loan to tie you over (to be repaid once the mortgage money has been released).
the estate agent can’t do anything about your deposit.

Bridging loans come with huge borrowing costs and high interest rates and are used for short term lending only, usually for investors who’ll be making a profit.
funders like buyers to have ‘skin in the game’ which is where deposit amounts and loan to value come in.

Pls double triple check the payment terms and penalties on any short term finance lending you do, and make sure you can pay their monthly amount too as well as your new mortgage.

good luck!

Yea we have a mortgage offer.

how would we repay the short term loan once the mortgage money has been released? I am confused.

Just tell the seller that you'll have to exchange Contracts and complete on the same day if they won't accept less than a 10% deposit on exchange. Solicitors can set the file up in advance, get all the money in from you, your mortgage lender and employer and do exchange and completion simultaneously, meaning the full purchase price is sent through to the seller solicitors in one go. Sorted!

It's a buyers market. The estate agent should have made this clear all along and it's probably just the solicitor being cautious understandably. Just hold firmly and say you were always clear on the deposit amount and that's what you have. See what the reaction is and whether this is just a problem for their onward purchase or something else. You are in a strong position!

We purchased with 5% deposit. There was no chain as the house was unoccupied so no other deposits to flow up etc.

Anyway our contract said 10% and I queried it with the solicitor. Pretty sure she said thay we pay our 5% but should we pull out after exchange THEN we become liable for the additional 5% as a penalty.

We didn't have to pay the 10% up front, that wouldn't have been feasible.

You'd get the spare money back from the solicitor once it was all done and dusted.

You'd give 10% to your solicitor at exchange. Then your company would send 50% at completion, and your mortgage company would send 47.5%.

So at completion your solicitor would have 107.5% of the purchase price. They'd just give you back 7.5%.

You can negotiate less than 10% with the seller but 2.5% is very low

We sold at 500K and so were given 50K deposit but bought at 600k and our seller accepted the 50k- which I think is quite common

Can you exchange and complete on the same day? I always do if possible.

This is my field of work and I can agree with this post.

Providing the seller and the chain above (if applicable) agree, then you should be able to exchange on the actual deposit funds you have (ie 5%) but be contractually liable for the remaining 5% should you be unable to complete the purchase.

unless you have a particularly pedantic solicitor acting on behalf of the seller, this should be acceptable.

They don't get their hands on the deposit until it completes.

Your mortgage is for £380,000 your deposit is £20,000. On exchange, you need to hand over 10%, £80,000.
so you borrow £60,000 from date of exchange, until date of completion, when the mortgage money will be released. The money to be released from the bank is £380,000, but you only need to hand over £320,000 (plus £400,000 from your employer) as you have already paid £80,000. The remainder, £60,000, will then be put into your account as it is not needed for the purchase. You then use this to pay your loan.
so you need the loan for about 10 days.
you could avoid this if you exchange and complete on the same day, but it means you need to be ready to move without the security that it is going ahead, and it could shift last minute.

This.

Very normal in practice for deposits actually paid on exchange to be less than 10%. It often starts as 10% at the bottom of the chain and this amount gets passed up the chain, becoming a smaller percentage of the sale value each time. Buyers are usually fine with this. 2.5% is very low though.

I would start by negotiating a figure to pay "on the day" that's less than 10%, of the order of 10% of a tyical FTB type property in the area.

Either way, if you did pull out between exchange and completion you would owe the sellers an absolute fortune - I would imagine 80k minus whatever you'd already paid, since your employer very sensibly doesn't get involved in deposits.

If they complete with us before they complete their purchase they will have their deposit -

Yes, but they won’t have anywhere to live in the interim.

The solicitors are I suspect talking about the standard 10% deposit on exchange which is nothing to do with the mortgage or what amount you are borrowing. Our first mortgage was 100% and second 95% so we certainly didn't hand over 10% at exchange. The alternative to handing over 10% on exchange is a legal document committing to 10% of the purchase price if you not be able to fulfil the completion requirements. Most people accept this when buying and selling but it's possible the vendor (or their solicitor) is insisting on actual funds. It's all part of one of the great myths that if someone pulls out after exchange it's fine because you'll get the 10% as compensation - not if money hasn't been handed over. Signing a document committing to the 10% means pursuing that through legal channels which takes time and costs money so I'm sure there are some people who will refuse anything except actual funds.

We moved from a small house to a significantly larger house and our only deposit was our equity from the sale which didn't equate to 10% of the purchase price. Sellers were happy fo wave it through as they had already bought outright.

So it is possible but depends on the seller.