Buyer only has 5% deposit

[LavenderLxx]

We’re at the final stages of selling my late fathers house - we have signed contracts and they are all ready to exchange and set a completion date for the coming weeks.

However I have just had an email from our solicitor to say that the buyers only have access to 5% of the deposit and would we accept that? They’d still be liable for the remaining 5% if they pulled out after exchanging but it would be harder to obtain the funds from them.

i don’t get the feeling that they will pull out now but you obviously never know?!!

Would you accept 5% deposit?

Also selling a probate property. Have no idea what their deposit is. I didn’t know it mattered.

Conveyancer here - we do not see and cannot ask to see Buyers mortgage approval/offer.

Conveyancer here - I completely agree. Unfortunately, I ask this question of the Buyers' Lawyer at the start of the transaction and continaully throughout and rarely get a response until the 'last moment'. It is incredible frustrating as when acting for a buyer it is one of the first things I establish, together with evidence of source of funds and wealth to comply with AML regulations.

Yes, it goes through the solicitor. Usually, since exchange happens fairly close to completion, you would transfer all the money you are contributing to the house sale to the solicitor (I think - its been a long time since I needed to do it as its generally only when you first buy!), who then passes the deposit amount to the vendor's solicitor. The solicitor then recieves the mortgage amount and passes the total balance over on completion day. Its just part of the process for an exchange of contracts - legally there has to be some financial consideration I think to make it binding.

I assume that you’ve no upward chain, so what’s the risk to you? Does the 5% cover all of your costs to date?

5% has been pretty standard as a deposit for years. With such high house prices, few people can get their hands on 10% these days as most of their money is tied up in property.

I would seek advice from your solicitor and the amount in question seems to be a factor.

Another reason to end the spivs charter that is house sale and purchase in England and Wales, to be replaced by what is required in Scotland, or something better than that.

I think I'd be inclined to agree. A 5% deposit if it is 100% of someones savings is a far greater "commitment" than a 10% deposit if it is 20% of their savings.

Standard Law Society contract still states 10%, but you're right, 5% is far from unusual these days, although perhaps not standard.

They’re CF to raise this so late in the day

if anything goes wrong between exchange and completion you will be 5% short

Yes. You will keep 5% if they pull out, even if you can't get the rest.

Interesting. But the buyers conveyancer surely does?

If the 5% will cover your spent legal fees and the closing is a week or two I would go ahead as you are in a no loss no gain period.

Eg your options are

Refuse you get no cash they pull out and you need to spend extra money to recover costs etc and you put it back on the market

Take the money they pull out and your costs are covered and you put it back on the market.

Take the money they finalise the close and you are paid the full amount.

I would have your Solicitor confirm that there they have done everything they need to do and you are in a position to sell as of today so that there are no outstanding issues which need to be addressed or are no concerns raised by the buyer about anything and that they are happy on a professional level of the buyers legal team.
And then make it clear that the final dates will not move.

Good luck

OP - yes in your circumstances I would accept - but push now for swift exchange and short time to completion.

Does the mortgage cover the other 95% or only 90%? Will they be 5% short so unable to complete?

Yes. I did sell a house on that basis. The 5% would more than have covered my costs at that point and if it had all fallen through I would have still owned the house. Inconvenient yes, but the only people out of pocket would have been the buyer and the estate agent, I believe the problem was caused by some of the funding being tied up in a LISA.

Yes, that is correct. Usually, the Buyers Lawyer also acts on behalf of the Lender . Each Lender has a handbook of requirements that the Conveyancer must check to ensure the Lender has a sound investment. The Buyers' Lawyer also must report to their Client on the T&Cs of the mortgage offer. Done properly, the work behind the scenes is quite extensive. When the Buyers Lawyer makes the offer of exchange it is on the basis that they have confirmed the funds are available (by way of a mortgage/gift/own funds) and all AML regulations have been adhered to.

So a COMPLETELY different scenario then.

But you will still get your full agreed amount. Unless you mean (and you need to clarify this) that they have asked for 5% off the agreed price?

Exactly - we can't advise unless OP clarifies.

It sounds like 5% of their deposit is tied up in something that releases in completion. Like a help to buy ISA top up, or an armed forces scheme.

So on completion they will pay the other 5% deposit, they're not asking for a reduction.

If they don't complete, they'll have to find the other half of the deposit from somewhere to pay OP.

It wouldn't worry me overly. They should have mentioned it sooner, but it's possible they didn't realise they couldn't access that 5% until now. I didn't realise the h2b ISA didn't pay the top up when you empty the account, but only at completion until I bought my house. (I scrambled around and found an extra few thousand for a couple of weeks until it paid me back!)

I don't understand this. Why would their deposit be communicated to you? Surely a deposit is what the bank wants?

When buying a house, there are two different deposits referred to:

1. What money you're putting in, compared to the amount of mortgage you're getting from a lender. The 'mortgage deposit'.
2. What money you're paying to the seller when contracts are exchanged. The 'exchange deposit.'

So you might be getting a mortgage using a 30% deposit, but would only pay a 10% to the seller on exchange.

How do you top up deposit if you are higher up the chain if your deposit is the equity in your own house? We never had to add anything extra to our solicitors to account for 10% of the top of the chain!
so if the bottom person pulls out they are only liable for their deposit but it could cause the person buying the house at the top to lose £80k for something that wasn’t their fault. How would they pay this without selling their house? Surprised anyone ever moves house if this is the case!

What does this even mean, it makes no odds what deposit someone has, the money gets paid on completion, combination of cash and mortgage or full cash if no mortgage

Why on earth would 'everyone need to agree'