Welcome back to my Industry Information series on the property conveyancing process.
So far, we've covered:
So now we're looking at the first exchange of actual hard cash - the deposit.
Most people, unless they are lucky enough to have the cash to buy a house outright, will secure a mortgage in order to buy a property - that's a loan from a bank or other lending institution, which is secured against the property itself. If you can't pay your mortgage, the bank takes possession of the house in order to recoup the money you borrowed from them.
In the heady days before the property crash in 2008, it was possible to get 100% mortgages, in other words, the bank would lend you the full amount you needed to buy the property. In fact, that bubble inflated to such an extent that at one point it was actually possible to get up to 125% - your house price + a 25% loan on top.
When that bubble burst, taking many people and their savings with it, 100%+ mortgages went up in smoke too. These days, a lender will do everything they can to make sure you have the financial stability to service a mortgage, and this includes forcing you to have 'skin in the game' by way of agreeing a mortgage deposit.
The standard is 10% of the purchase price, so if you agree to buy a £100,000 house, you will have to stump up £10,000 in cash and the lender will lend you the remaining £90,000.
The minimum deposit for a buy-to-let mortgage is usually 25% of the property's value (although it can vary between 20-40%).
Some lenders can still be willing to lend 95% to a residential buyer, but if that's the case, make sure your solicitor is able to negotiate an exchange deposit that matches this.
Don't panic - these are not two different deposits you have to pay - you only have to pay one deposit. The mortgage deposit is simply the amount you have agreed with your mortgage lender that you can afford to pay upfront in cash.
An exchange deposit is the actual payment of that cash sent to the vendor upon signing the contract.
When contracts are exchanged, the vendor's solicitor will request the agreed deposit from the purchaser's solicitor. The purchaser pays their deposit to their solicitor, who pays this forward to the solicitor acting for the vendor.
This action, together with the signing of the contracts, constitutes a binding legal agreement. If the purchaser were to pull out, the vendor can sue them to keep the deposit.
This is one of the times you'll see the value of good communication between all parties, particularly if your purchaser is also selling a house. You may hear solicitors and estate agents talking about deposits going 'up the chain' and that's because not many of us have five-figure sums of cash lying around for deposits - we are usually counting on the deposit from our own property sale to make up a healthy chunk of the deposit for the property we're going to buy.
So, if you are buying a house, it makes sense for your solicitor to not only have a good working relationship with your buyers, but also to have a working knowledge of what's happening with the people your buyers are selling to.
Next month, I'll tackle enquiries before contract.
What do you think of the Conveyancing series so far? Is it answering your questions? Is it raising new ones? Is there anything you need me to dig into a little more deeply or explain differently?
Join the conversation over on my social media, or drop me a line via email - the links for all of these are in the top right-hand corner of this screen. Get in touch about this article, or indeed any Belfast property questions you might have - I am always happy to help.