Does this sound right - sellers have to agree 5% deposit

[Shefliesonherownwings]

This is my first ever post in MN but interested in views on this and previous experiences. Husband and I are first time buyers. Offered on a house in mid May, mortgage all agreed on the basis of a 5% deposit so 95% mortgage. Solicitors were given the mortgage offer in June 2018 with this information. There is only us and the sellers in the chain, the sellers are not buying anywhere else.

Finally (after numerous delays) we are ready to exchange and completion is proposed for a couple of weeks time. Over the last week, we received a couple of documents from our solicitor which referred to the deposit being 10%. Each time we have corrected him on this. Last week, we transferred the 5% deposit to the solicitors.

Received an email from our solicitor this morning in which he has said that whilst our lender has agreed to lending us 95% of the purchase price, as the standard deposit in a property transaction is 10% all of the parties in the chain need to accept a reduced deposit and they are not obliged to do so. He has said he will ask 'our buyer' (I presume this is an error as we are the buyers) if they will accept the reduced deposit.

Is this right? I don't understand what it has to do with the sellers, as long as they get the full purchase price what does it matter if the deposit is 5% or 25%. I wonder if the solicitor has got us confused with another transaction given he has referred to there being a chain and asking 'our buyer'. I am waiting for him to call me back about this.

We are really concerned this could mean everything falls through if the 5% is not accepted, not to mention being concerned that the solicitor has not raised this previously. Our mortgage broker said he has never heard of this either, anyone know what this is about?

It’s probably related to the usual 10% penalty for pulling out after exchange. Hence the vendor has to agree to only 5% deposit being held between exchange and completion.

10% is standard but there are ways around it.
Exchange and completion can happen simultaneously. Alternatively the people you are buying from can accept the lower amount.
I think it is time to have an assertive conversation with your solicitor about what you need him to do.

Yes, this does sound correct.

For as long as I can remember the 'standard' deposit paid on exchange has been 10% of the purchase price, however in practice it can be whatever amount the vendor agrees to.

It is not unusual for the amount on exchange to be 5%, so I would imagine it is likely to be a formality, but it is something the vendor and the vendor's solicitor need to agree to. If the vendors from whom you are buying are in turn buying another property they may need to check that the people above in the chain are also happy to exchange with a deposit lower than the 'standard' sum.

If you pay less than 10% and your sellers are buying somewhere then if their seller wants 10% they have to find the difference at deposit time.
So our buyers give us 10% eg 25K as a deposit. We need to find 15K to put a 10% deposit on a 400K purchse.
If they paid a 5% deposit (12.5K) and our sellers stick to 10% we now need 27.5K to make our deposit.

This is all standard and fine.

It matters to the sellers because they’d keep the deposit if you pulled out after exchange and usually they want ten percent to protect themselves.

But if they’ve agreed to 5 percent they just need to confirm that to their lawyer, who will confirm to yours and the documents will be amended.

We just did the same sort of thing.
We paid an upfront cash deposit of 2% to our seller to secure the property (long story, but property sells quick here and it was what we offered to secure it). That meant our deposit which is normally 10% was reduced to 8% and our solicitor had to get sellers to agree to this (which wasn't an issue because we agreed to do this upfront). So yes. Our deposit was 10% but with a 2% paid upfront.

Your solicitor does have to get your sellers to agree.

10% is standard and the seller has to agree if less but even if they do and you don't complete etc you are still liable for the full 10% deposit.

Also your mortgage offer would NOT have been provided to the seller so they would not know you were borrowing 95%.

Out of interest who has gone back to 95% ltv mortgages?

I have no recollection of what we did when we were FTB nearly 20 years ago but we had a 100% mortgage so definitely no cash deposit involved - maybe we exchanged and completed on the same day?

@ShalomJackie I've seen HSBC have a banner on their site advertising 95% mortgages.

@ShalomJackie

There are loads offering 95% today:

www.money.co.uk/mortgages/95-mortgages.htm?track=881689&creative=260039893575&network=s&placement=&adpos=1t1&gclid=CjwKCAjwoMPcBRAWEiwAiAqZh3qxi883L5GELHwcC_BQP5qgMXeQZtbfd7xeLM2Mtzt3lkHr44sLbxoCGdwQAvD_BwE

As the seller isn't buying anywhere else, it's unlikely to be an issue and anything more than a formality.

My first mortgage twenty years ago was 95%.

Thanks all, spoke to solicitor now. Am annoyed he didn't raise it with the sellers sooner but we are where we are.

There is no chain as the sellers are not buying anywhere else and we are FTB. Solicitor didn't think there would be a problem as we are so far down the line and if we pulled out after exchange we would be liable for the full 10% not 5. Fingers crossed no more hiccups.

Shouldn't be anything to worry about then, just a formality.

Shalom a lot of banks have been offering 95% LTV mortgages for a few years now. However, the lending criteria is a lot more stringent than if you have a bigger deposit. The affordability checks are a lot more in depth and one's credit record needs to be squeaky clean to be considered for these mortgages.

Almost all my FTB friends who have just bought a property in the last 2 years have had a 95% mortgage and 5% deposit.
I don’t see how this would be a problem. If you’re yet to exchange then you’re not bound by the purchase so I don’t see why the seller would not agree