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?

This. 100%. It is clear that there are lots of people on this thread who don’t understand the deposit or the implications if your buyer defaults on the contract. Your solicitor should be advising you on this, you’re paying them for their experience and knowledge! Personally, 5% is the minimum I would accept.

@soupyspoon

because if the sale collapses after exhange and before completion you could have paid 10% for your onward purchase but only received 5% from your buyer

given that most people climb up the property ladder, they stand to lose a huge amount

We had this scenario when moving. We pushed back and asked for 10% (conveyancer’s advice) buyer conceded they would have the 10% deposit. We started to worry they couldn’t actually afford the property.

They later dropped out before exhange. They should have been honest at the outset

Perhaps they pulled out because of your behaviour over the deposit? It's not unusual at all not to have the deposit available in cash e.g. if you're in a chain, because you're usually using your equity in your current property plus a mortgage to fund the purchase.

When we bought our current house we could easily afford it, the LTV on our mortgage was only 25% as we had a lot of equity in our old house. But we didn't have the six figure deposit sitting around in cash, so needed to agree a 5% deposit.

No . We acted on the advice of solicitor. So their “behaviour” not mine

There's a reason why exchanges are 10% deposit and solicitors tend to advise clients to stick to that figure. You were absolutely right to follow their advice - that's exactly what you pay them for, their knowledge and experience.

To be fair I knew nothing about this until we were in this position. 10% deposit is the 'default' and unless informed differently the whole chain's contract are based on each party paying this deposit on exchange. If the chain then collapses after exchange then then the deposits act as compensation. If the person at the bottom of the chain is only offering 5% (on the lowest value purchase) then those further up the chain run the risk of losing a lot of money. Hence they all need to be made aware and agree. I don't suppose it's as important if you complete and exchange on the same day but we had a two week window (largely because our buyers had proved themselves to be so untrustworthy that no one else in the chain would procede without that safetly net).

In our case the people at the bottom of the chain bought our house on the basis that they were first-time buyers with a 10% deposit. Over the next 6 months it turned out that they acutally had two houses to sell in order to be able afford our - which they managed to do. Then the sale of one of those fell through so the whole thing fell apart (this is the point where we found out they were not FTBs). They managed to find a new buyer, tried to negotiate a 10% reduction in the price of our house (NOPE!) and then finally on the day of exchange threw in the curve ball that they actually didn't have the full deposit!

A sale collapsing post-exchange, before completion is so astonishingly rare it’s statistically irrelevant.

Yes, I would. In theory we have a 10% deposit but in practice, if it means the slush/redundancy fund feels to small to me, we'll go with a 5% deposit if we absolutely must.

However, we're only looking at houses at around 40-50% of what a bank would actually lend us, cos the OH works in tech and they throw silly numbers at him, but we don't want a really big mortgage. We want a sensible house and decent pensions (I can't work, he's putting away pensions for x2).

I certainly wouldn't assume someone couldn't afford the house if they only have a 5% deposit. I want a 25-30k emergency/redundancy fund to feel comfortable with a house purchase, is all, and I think I would offer potential buyers the courtesy of trusting that they know how to manage their finances (is that naive?).

This is not legal advice.

This isn’t uncommon and we never have issues doing this, most transactions don’t actually involve a deposit at all it’s more of a guarantee, but ask your conveyancer anyway.

You, and many others on here seem
to misunderstand what a deposit is.

A deposit is funds lodged with the sellers solicitor on exchange. If the buyer fails
to complete then they forfeit the deposit and it is paid to the seller. The deposit is a commmitment to buy.

Had you lied and said you have 10% and are good for the 5% or had you been honest from the start and told the seller you can only raise 5%?

The OP had been told the buyer had the 10% so that is a trust issue for one of the biggest financial transactions of the OPs life. The sale is a probate sale so no direct chain will be involved. So although most people cant affort to loose the 5% knowing if any other conduct has raised a red flag with the OPs legal team is essential as it will end up in a legal mess if the buyer cant come up with the final money.

Mortgage-Backed Securities (MBS), & Crash name that year?
anyone?

Buyer's solicitor. No transfer to seller's solicitor until completion or confirmed failure and deposit loss.

What’s that got to do with anything?

2008 didn’t cause loads of sales to collapse post-exchange.

Banks grant loans on the expected recoverability of the recoverable amount if the OPs property value fell or the buyers financial situation changed then the buyers bank would reduce the amount they would be willing to lend if the bank would lend at all. Having the contract clause of having approved finance saved a lot of people who had signed contracts but through no direct fault of their own could not finance the purchase.

The OP has said that the sale has no chain and should be finalised in a few weeks so there is a minimum risk but not being able to provide the expected 5% is a red flag.

I’m not sure how any of what you’ve written relates to the situation in the OP.

sounds like they’ve got 100% of the purchase price ( presumably cash + mortgage), but only want to exchange using 5% of the purchase price.

banks tend not to revalue the property on which the loan is being secured inbetween exchange and completion, except in some very unusual circumstances.

The agreed % was 10%

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.

The buyer now only wants to front 5%

Leaving the OP 5% short under the contract or the OP will have to amend the conrtact to the lower 5% amount (which is a disadvantage to the Estate)

The OP has no idea why the buyer is not able to lodge the other 5% but an unexpected change in cashflow indicates some kind of financial hardship on the buyers end.

Under the current conract if the buyer pulls out the OP would have to use Estate money to recover the unfunded 5% due to the Estate (not the OP) and incur legal fees to be able to reclaim and resell the property

The OP doesn't say that 10% was agreed, actually. An assumption may have been made that it was 10%, but the buyer's conveyancer would've known that their mortgage was for 95% of the purchase price after getting the offer in. It sounds like an oversight to me

5% deposit isn't uncommon, so I'd agree to it. You could always exchange and complete on the same day if you're concerned?

They’d still be liable for the remaining 5%

From this ^ the current contract says 10%.
The problem is that the 10% is due to the Estate not the OP so if the current contract was not changed the OP is on the hook to collect the full monies owed

Thank you for all your replies.

Just to clarify - the sale price of the house will remain the same. It is just that the deposit paid to our solicitor on exchange will only be 5% rather than the standard 10%.

Having spoken with the solicitor he has said that although he doesn’t have access to the buyers mortgage details he has to trust that their solicitor is happy to proceed. He said that 5% is quite common and he would professionally be happy with 2.5% if it came to it.

I just asked the question here as I’ve not bought/sold a property in this country before and the exchange deposit hadn’t been mentioned up until this late point!

All sounds very sensible, hope the sale finalises for your soon.

I must admit I have never been involved in any knowledge of deposits from buyers. Unless they said they were cash buyers with no mortgage I’d be none the wiser. I’m selling a probate property now and the buyer’s deposit has never been mentioned.

No. Under the terms of the contract the deposit is paid to the seller’s solicitor on exchange of contracts. However in practice the buyer’s solicitor often holds it to order until completion simply to save the additional admin. However, as a conveyancer I would always ask for it to be sent on exchange if the completion date was over 2 weeks away