Can't believe I am asking this (deposit, exchange, equity)

[cluecu]

At the risk of sounding incredibly stupid I'm a bit confused. Hoping someone can help me as the research I'm doing online is not helping!

Our (DH and my) situation is:

Bought our 1st house around 7 years ago as first time buyers.
Would now like to buy a larger and more expensive house
Have around 60k left on the mortgage and similar properties in the area are selling for around 130k.

So, in my mind I was thinking budget up to around 240k. Assuming we had an offer accepted etc (and a buyer for ours at 130k leaving 70k owing to bank) I thought we be applying for mortgage of 180k and the 60k equity in our 1st house would be the deposit.

However, I am now realising we'd need to all be stumping up an exchange deposit we'll before this. So, assuming the financials were as above, we'd need to find an extra 11k in cash for the seller of next house in addition to the 13k our buyer would deposit to us.

This is achievable as we have savings however am I the only person that thought the equity in current was the deposit?

Also, when we receive the rest offunds from our sale, we probably couldn't pay it straight against the new mortgage in case of fees for paying too much, so do people just put that in an account?

I feel silly here but all my friends are ft buyers too so I don't know anyone who has recently bought and sold at same time

Already spotted I've put the wrong digit in my first sentence but hopefully it makes sense. We owe 60k and would expect to sell for 130k

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

Right. I work in this arena.

You sell your house for 130k. Have £60k towards new house, but you'll have legal fees that you need quoted, but assume 7-10k.

Therefore you need a mortgage of £190k (unless you use savings). On day of exchange whoever is FTB in chain deposits 10% of price of the house they are purchasing which essentially passes up the chain to complete the exchange chain and then on day of completion everyones mortgage funds are released and the balance of the purchase money gets paid to the purchaser, old mortgages paid off. Then you get the keys 😁

Your deposit to exchange will come from your sale. You’ll exchange both at the same time. So provided you have enough equity you’ll be fine.

But if you are buying a more expensive house the 10% you get for yours won’t be enough?

@ftengineerM thank you, yes I have read that but the second example of Helen and rajesh does state I'd need some of the exchange deposit as cash unless rajesh agreed to only have 10%

I understand why, however I had never known this and I thought it all went through together at the end

Basically it seems that if you're buying a more expensive house, you need cash from somewhere in addition to the expected fees. I am lucky that I could do that but it's really surprised me too

@letsnotscaretheneighbours so my 10% to my seller would need to come partly from my own funds in addition to the money I receive from my buyer?

We are buying a house that is quite a lot more. We just agreed that our buyers would pay a 10% deposit and we will pay 5% on our purchase. It's still a lot of money (obviously!!) so still too much to want to loose, but we didn't have to find extra cash.

Sorry, my first sentence should read 'we are buying a house that is quite a lot more than we are selling ours for'

Normally the person selling to you accepts the lower deposit on exchange. Everyone understands the logistics and just wants to get on with it. The risk is minimal.

I think you are getting your 60k and 70ks mixed up but that aside... I've moved house 4 times and never had to put an exchange deposit down.
We offered to on the first house we purchased 17 years ago and were told that was an older fashioned menthol and unnecessary and have never had to do it again since. I have since then always used my equity as my "deposit" to the mortgage lender.

Old fashioned method not menthol!

Is it a new build and the builder requires deposit?

I have always put 10% cash to solicitor on exchange - if in a chain the amount can come from whomever is buying yours but if you are buying a more expensive house that 10% is more so you make up the difference in cash, or request they accept a lower deposit. The whole point of the deposit is to try and ensure you don't back out - I don't understand how using the equity in your house counts as it isn't tangible. Your sale may collapse but if your vendor has accepted 'equity', where does that now come from if the amount your buyer deposited isn't 10% of your purchase? It is far more unlikely a chain would collapse after exchange but not inconceivable.

Yeah, I linked it because it says you can agree a lower exchange deposit.

As a FTB I didn’t have a 10% deposit we had a 5% and hadn’t even heard of an ‘exchange deposit’ so there was obviously absolutely no cafuffle about it being 5% and not 10%.

@Midlifephoenix

I have always put 10% cash to solicitor on exchange - if in a chain the amount can come from whomever is buying yours but if you are buying a more expensive house that 10% is more so you make up the difference in cash, or request they accept a lower deposit. The whole point of the deposit is to try and ensure you don't back out - I don't understand how using the equity in your house counts as it isn't tangible. Your sale may collapse but if your vendor has accepted 'equity', where does that now come from if the amount your buyer deposited isn't 10% of your purchase? It is far more unlikely a chain would collapse after exchange but not inconceivable.

They’d have to sue you for the difference if you were unable to make it up.

Thanks for everyone's comments. It seems that it's potentially something I'll need to have available but in some cases isn't always necessary. I'll speak to broker etc as things progress. Still can't believe I didn't know about this

Letsnotscaretheneighbours can I just check something? You said the legal fees would be £8-10k? That sounds really high and way higher than the quotes I got for my sale. Is that a typo?

@Bouledeneige

Letsnotscaretheneighbours can I just check something? You said the legal fees would be £8-10k? That sounds really high and way higher than the quotes I got for my sale. Is that a typo?

She’s including SDLT.

@Bouledeneige sorry been manic at work. Yes that would include stamp duty which has just been stopped for a further few months.

@cluecu as a home owner normally you don't have to add any funds at exchange.

@Bouledeneige sorry also that would be buy/sell/stamp duty costs

@cluecu Basically it seems that if you're buying a more expensive house, you need cash from somewhere in addition to the expected fees. I am lucky that I could do that but it's really surprised me too shock

Not the case, it is agreed up the line that some money changes hands at exchange but not necessarily the full 10%. However IF you pulled out of the purchase at exchange you could be sued for the remaining of the 10% deposit.

Sorry after you had exchanged but before completed

I think loads of people get confused about this it seems in theory 10% gets passed up the chain but, in reality the solicitors will agree between them that the percentage gets less each step up the chain.

Just don't pull out between exchange and completion (seems to be incredibly rare that that happens) and it will be fine.