Are sale proceeds the same as equity built up in your current home?

[zuza96]

Apologies if this is a silly question but we are in the process of moving, and we want to use the equity built up in our current home as deposit for the next home. Is this the same as the sale proceeds? we haven't sold a house before and our solicitor doesn't use the term equity so it's a bit confusing.

In a word, and without getting overly complicated, yes.

To me they are not the same thing:

Sale Proceeds - the total amount of money you get from the sale of the property

Equity - the money remaining once you have deducted the outstanding mortgage from the value of the house. Basically it is your profit.

So if you sold a house for £300,000 and had a £200,000 mortgage outstanding on it you would have equity/profit of £100,000.

Sale proceeds = all the money the purchaser pays for your property; some of that will go to pay off the outstanding mortgage and some of it will be equity.
Equity = the value/purchase price of the property less the amount owed on the mortgage.
You can’t use your equity as a deposit on next property unless you have first sold the property and turned that equity into cash - because you actually have to pay the deposit to the seller, it’s not just a promise of future payment. So if the transaction is a chain you’ll need to fund the deposit some other way (savings, a loan…).

I agree with you but best OP clarifies with her solicitor what they mean as OP is paying their bill after all.

Yes that makes sense, so we used an online equity calculator and the equity according the value of the home and the remaining mortgage amount is £86,000. We sold our property for £292,500, and have a remaining mortgage amount of £196,500 but have a secured loan of £10k so the equity is what we use as the deposit correct? the £86k.

This

We did sell our house subject to contract, and are buying a new build

Remember that you will need to deduct estate agents fee, legal fees and stamp duty from the equity if you don’t have this saved separately.

we are using cash incentive from the developer for these

You can use sale proceeds to fund a deposit in a chain. We’ve just done so! I did ask the solicitor (there was some cash but nothing like a full deposit) and she laughed and said it was rare for people to have it separately now because house prices are so high.

Ok - so you haven’t sold current property yet in that you have not received any money from buyer, subject to contract means you’ve yet to exchange. At some point you will need to give a deposit to the seller of your new house, and you need money to do that. You won’t yet have the money from your sale so you will need to fix that money elsewhere.

@CaledonianSleeper That's not quite correct. You can use the equity in the home you are selling as a deposit for the house you are buying in the same chain, and this would all be part of the completion process, usually on the same day.

I'm sorry but that makes no sense? We have reserved the new build and the developers are aware that we sold our house subject to contract. We are due to exchange in two months and our buyer is a first time buyer without a chain so we will give our deposit from the sale proceeds when we exchange

Money only changes hands upon completion, not exchange of contracts.

In England, You can usually use your buyers deposit as your deposit.
So, if you sell a house worth 100,000, and your FTB put on a 10% cash deposit, you can usually use that as a 5% deposit against your 200,000 house.
It's very rare that people put in extra cash to maintain a 1% deposit all the way up the chain.

From what I know the deposits are given on exchange of contracts, just googled it now too and it is exchange of contracts?

Yes that makes sense, so the sale proceeds is the value of the house, and then you'd deduct the remaining mortgage amount and you've used your equity as the deposit correct?

You can use the deposit from your FTB to place as the deposit for your purchase. An exchange deposit isn't the same or necessarily as much as a mortgage deposit.

Thanks @tattychicken - how does that work, is the equity used to secure a loan to pay the deposit or does the buyer agree to forego deposit with the equity as security for future payment?

This is partly why buying in a chain is such a problem, no one has the funds until the next one in the chain gets complete, so all the sales/purchases in the chain have to happen simultaneously and if any one deal falls through the whole chain collapses.

We did one house purchase with a separate deposit (from savings) and a bridging loan for the rest of the purchase cost, until our house sold, that was still pretty stressful though, having two houses and a very expensive bridge for a few months

Or are you talking about a 'small' deposit just to secure the sale? Not the difference between the mortgage amount and the price of the house you are purchasing, ie, the cash (from selling your house) you are putting into the purchase.

okay so when we exchange we'd use our buyer's deposit as the deposit for the new house? and when we complete we'd hand over the equity and the new mortgage amount from the lender correct?

At exchange, your buyer will pay their solicitor the deposit. Their solictor will transfer this to your solicitor, who will transfer it as your deposit up the chain (i.e to the builder).
When the sale completes, your buyer will transfer rest of money to their solicitor, who will send it on to your solicitor. Your solicitor will pay off the remaining on your old mortgage with this then they will transfer the leftover equity and the new mortgage funds (which they will normally request the day before) to your seller (ie the builder).
If your equity + new mortgage is more than your house purchase, fees and stamp duty, they will refund you the difference. If the new house, fees and stamp duty is more than the equity + new mortgage, you'll be asked to transfer the top up balance before completion to you solicitor.