Only 5% deposit with chain free buyers?

[RHTawneyonabus]

We’ve been told our buyers will only be able to offer 5% on exchange. They have nothing to sell and are in rented - not FTBs tho. They are older than us! Am I right to be having a bit of a stress about how serious they are? I just can’t think of a good explanation for why they would be so short of cash.

We are purchasing something significantly more expensive so if something goes wrong between exchange and completion we stand to loose a lot more money than they do.

I'd say anything under 15% right now in this current climate is a no go . No matter what their earnings are .

Are they cash buyers or needing a mortgage?

If needing a mortgage would be very concerned.

If cash buyers and estate agent has checked proof of cash would be less concerned. It maybe tied up to a certain date though I would ask estate agent why it would be 5%.

We exchanged on 5%, it’s quite normal in a chain however being cash buyers moving from rented I would be asking why?

Are you sure they’re chain free?

Has the agent seen their proof of funds and mortgage agreement in principle?

I don't understand why it's a problem or a risk to the seller, can someone explain?

Assuming that people older than you should have more money than you seems judgemental to me. But more importantly I just don't understand how it's relevant?

Because they’ve owned property before Secret and because you generally build up more savings as you get older. It’s not ‘judgemental’ just how things normally work. In that position I’d expect them to have more than 5% deposit available.

Basically I’m now worried they don’t have the funds to buy the property and that their margins will be very tight which might lead to the chain collapsing. I’m wondering if I now need someone to check out their finances ASAP before this goes further. I’m not sure who does this though.

It's always been the estate agent or their financial adviser that has done it - when buying in cash its normally recent bank statements. I've always had this done immediately after offer, within 24 hours or so.

@RHTawneyonabus

Because they’ve owned property before Secret and because you generally build up more savings as you get older. It’s not ‘judgemental’ just how things normally work. In that position I’d expect them to have more than 5% deposit available.

Basically I’m now worried they don’t have the funds to buy the property and that their margins will be very tight which might lead to the chain collapsing. I’m wondering if I now need someone to check out their finances ASAP before this goes further. I’m not sure who does this though.

Surely your estate agent should've checked all that out prior to advising you to accept the offer? They should also have a mortgage in principle based on the 5% deposit. I'm not sure lenders are lending 95% at the moment.

I recently sold and had 4 offers, I was advised not to go with the highest by my agent as their finances were not clear.

How far in the process are you OP? We had a buyer with only 5% they were a ftb though. We were also buying something considerably higher and I was worried, however covid begun and all parties in the chain were advised that we must exchange and complete on the same day so I felt it wasn't too risky.

I’m thinking I’ve been a bit naive not to have insisted the estate agent checked out their finances ASAP now. They’ve had a survey done and I think might be seek mortgage approval but if they are shaky I want to know now before we progress with our purchase which is at an early enough stage.

I still think that your perception of risk associated with the 5% deposit has probably more to do with your anxiety than the objective situation. 5% of any house price is still a significant amount - who would want to risk all those £££ and why?

If buyers are not FTBs, they may be a couple coming out of divorces, or one of them is FTB but the other one isn't so together they are not classed as FTB. It could be due to life-limiting or terminal illness keeping them on low income. It could be because they are immigrants and are not in the same financial position as British-born people are. Lots of complicated circumstances can result in a 5% deposit situation but it doesn't automatically mean that they are flaky and don't want the house.

I think people would generally pull out AFTER exchange only if they have a sudden and significant change in personal circumstances, and then yes if this happens then they are a little more likely to pull out if the deposit is low. But it's not because the deposit is low.

The fact that you don't know if the agent checked their finances doesn't mean that this didn't happen. It might be all fine. Their solicitor would also ask for their mortgage details and wouldn't even get to the point of exchanging contracts without having this information in place.

It is usual to provide a ten per cent deposit of the purchase price secret which is forfeited if the sale falls through between exchange and completion. They (buyers) are only providing half their amount leaving the OP with a potential shortfall if disaster strikes.

I think someone on here spoke about this recently and it was written in to the contracts that if the sale did fall through after exchange they (buyers) had to pay the remaining percentage of the deposit.

I'd say it was pretty rare to have sales fall through between exchange and completion, but there does seem to be a trend of exchanging and completing on the same day at the moment.

Speak to the EA and the conveyancer, OP - hope you get it sorted.

I didn’t think any lenders were doing anything less than 85% mortgages?

Our solicitor said when we were selling that a sale falling through between exchange and completion had only happened once to him across 20,000 house sales. In that case, the purchaser died in between.

It happened to us but we were selling to a developer (who had no morals).

I think it's fine but I would want to know why only 5%.

www.unbiased.co.uk/life/homes-property/what-s-the-difference-between-a-mortgage-deposit-and-an-exchange-deposit

Just going to leave this here.

I didn’t think any lenders were doing anything less than 85% mortgages?

That’s what everyone is saying at the moment.

Whenever we’ve offered on a house, we needed proof of funds and a mortgage agreement in principle before the offer was agreed. I would hope EA’s do that routinely rather than take someone’s word for it.

Do they have a mortgage in principle with a 5% deposit? It's been heavily reported that pretty much all those products have now disappeared from the market.

They should have had an AIP for the agent to allow you to accept their offer.

Speculation as to whether such 95% products exist etc is a bit pointless. Just call the agent first thing today and say you need confirmation ASAP that they have an AIP for 95% as you don't want to waste your or their time if they don't.

I personally wouldn't draw conclusions about why they 'only' have 5%. We don't know your purchase price. That might be 100k!

But seriously - their business is to have solid funding. I wouldn't ditch them because I think they ought to have more cash. Presumably they wouldn't have paid for a survey if they didn't have something agreed in place.

And obviously get assurance from their broker that the AIP product still exists!

We had a FTB buyer with a 10% mortgage AIP offer on our place. She got herself in knots over the EPC and what we didn’t realise (1st time sellers learning quickly here) hadn’t put her full mortgage application in until she had reassurance about the epc from an independent individual. In that 3 week gap her lender had pulled all their 90% mortgages, and she had her full application refused resulting in us having to remarket. She was devastated as were we. If they only have an AIP, that needs to be checked out ASAP. If they’ve already had their mortgage approved by their lender it should be ok I would think.

Has your estate agent seen their proof of funds for the deposit, AIP, and has their mortgage been approved? He/she should have checked that they have the funds to pay when accepting their offer on your behalf. The buyer of our previous house only had a 5% deposit, given house prices at the moment that was still a significant amount of money. Our solicitor said it was becoming more normal for people to not have the full 10% as house prices have gone up- obviously everyone's attitude to risk is different but he advised that in these circumstances he felt it should be enough cash that it would hurt a lot if they forfeited it! @ChicCroissant's suggestion of an obligation to pay the remaining percentage of the deposit if they don't complete is a really good one. Exchange and completion on the same day might also help to put your mind at rest.

As at @cherryblossommorningstoday says a house sale falling through between exchange and completion is meant to be very rare.

How do you not know whether their funds have been checked? Honestly you need to get more involved in this sale and get everything checked / double checked

I'm a hopeful FTB, so I don't know much on the process but if they have already spent money on a survey BEFORE making sure they can get the mortgage, doesn't scream efficient money management.