exchange of contracts confusion

[ozzia]

So I've read on another thread that at exchange of contracts you have to put a 10% deposit forwards. How does it work when the money for the new house is coming from the sale of the current house?

I'm very confused!

The deposit usually gets passed up the chain. So your buyers deposit goes to your seller. Our solicitor negotiated our deposit to be the 10% of our sale (less than 10 % of property we are buying) - not sure if that's the norm

Ah, there's about 100k difference between the one we're selling and the one we're buying. We don't have 10k sat around except in isa's which we don't want to touch

When we moved we had to produce a deposit for the difference between 10% of the old house and 10% of the new house - around £25k. Solicitor only mentioned it at the last minute, presumably as they thought it was so obvious. We managed to scrabble it together but if not they would have had to go back and try and negotiate 5% or something.

We had a £40k difference between what we were buying and what we were selling and our solicitor negotiated a £4k reduction on the deposit. Only worked because it was a very short chain - if our vendors had also been buying it would have made the problem twice as big for them.

Given the crazy low interest rates on ISAs at the moment will you really lose that much? Maybe £30 of interest sacrificed? That's nothing compared to the transaction you're about to do. If your ISA deal would massively penalise a withdrawal to the tune of £hundreds then a short term loan may be cheaper.

Fish I'm guessing the OP is worried about their annual ISA subscription rather than the interest whilst it's out of the a/c?

ozzia - don't forget that the ISA subscription limits are now much higher. Do you use the full £15,240 or would you be able to reinvest? Also remember that from October (I think) the ISA rules are changing so you can take money out and put it back in again. Not sure this will be soon enoough to help you though?

I'd take it out of ISA and then put it back in after completion

I think we're more worried that it would inevitably not go back into the ISA. We've maxed our allowance and I know interest rates are rubbish but we both keep that as buffer money in case something in life goes horribly wrong.

We've not got a date for exchange of contracts so should I mention to the solicitor about this now? Not entirely sure what I'm asking for other than the deposit to go up the chain?!

Seems a crazy system really as most people don't have that kind of money readily available

You can ask for the deposit to go up the chain.

We had 4 people in our chain and only the FTB paid the 10% deposit (around £20k). The solicitor of the 2nd buyer then phones 3rd buyer's solicitor to request they accept a lower deposit as 2nd buyer's deposit is tied into the house. Then likewise 3rd buyer's solicitor phones 4th (end of chain) solicitor to say only £20k deposit as 3rd buyer's deposit tied up in house and likewise 2nd buyer (deposit around £50k now required). The 4th (end of chain) person does have the right to insist on higher deposit but it's only a problem if someone pull's out after exchange and you might need to sue them. Solicitor will tell 4th person that it's perfectly acceptable to accept lower deposit as no-one further up the chain usually has the deposit in hard cash.

I'm also a conveyancing assistant so see this all the time.

HTH

Speak to your solicitor. You have to be absolutely sure about the money you need to have available for exchange or it may delay it happening. or worse case scenario not happen.

Thanks spickle, I take it I should confirm that is what will happen with my solicitor ASAP.

Is the way to word it "please can you confirm for me whether it will be acceptable to pass the 10% deposit up the chain?" I find sometimes he expects me to understand lawyer speak and I just don't

In the old days you could take out a bridging loan with the bank...

Yes, "can you explain clearly about what happens on exchange with the exchange deposit? Can we pass our buyers deposit on to our vendor, and will there be any shortfall?" If you don't understand his answer, ask him to repeat it in simpler terms.

As above, the usual procedure is for the deposit to go up the chain as most people have most/ all of their money tied up in their house.

There is also a standard term in the contract saying that if the buyer fails to complete then, regardless of the deposit handed over on exchange, they will be liable to make up the difference to 10% of the purchase price.

In reality, if there is a short gap between exchange and completion, no money is actually handed over on exchange and the chain agrees that it is held with the solicitor at the bottom of the chain.

We once refused to allow our deposit to be used as our vendors deposit as there was a real risk that they would have been made bankrupt. As it happens, the purchase didn't go ahead as the second charge holder started repossession proceedings and we pulled out as it was getting way too stressful. As long as there is nothing like this in the chain (was a very unusual set of circumstances that led to this as usually the bank will hold off until completion if there is a sale in progress that looks likely to complete). With ours, Ocean Finance wanted more than we were willing to pay so started proceedings before we exchanged. If we had exchanged and allowed them to use our deposit it could have been lost in the repossession/bankruptcy proceedings. We had fair warning of this as we had been negotiating with ocean finance, but they wouldn't budge on wanting an extra £5k. We wouldn't pay it. Unluckily for them, the house sold for £60k less than our offer once it was repossessed...

Thanks all for your help. Going to copy and paste the above wording into an email

Being a first time buyer was so much more simple!

The solicitor has confirmed they will use our buyers deposit to pass up the chain

I have asked for clarification whether we will need any reserves