When does this happen?
It is sometimes the case that a full 10% deposit is not available. Some examples include; –
- You are selling and buying at the same time and you are purchasing for a higher value than what you are selling.
- The person at the bottom of the chain is getting a 95% (or 100%) mortgage
- The person at the bottom of the chain is using a help to buy ISA, in which case they cannot use the government bonus towards the deposit.
Contractual Position
In a residential property sale or purchase, the standard conditions of sale in the contract state that a 10% deposit is payable on exchange of contracts (10% of the purchase price).
Although a buyer may not have a full 10% deposit available on exchange of contracts, the standard conditions of the sale contract do cover the possibility of a reduced deposit. Contractually a buyer would still be liable for the full amount and the seller can pursue the buyer through the small claims court.
What happens if we don’t complete?
The lower deposit would only be an issue if there is a breach of contract, and the buyer is unable to complete. The full deposit won’t be readily available, so the seller would need to pursue the buyer directly for the outstanding balance – through the courts if necessary as it is likely the buyer will not have the additional funds to be able to pay the balance of the deposit.
If you are just selling only, you could agree to accept the lesser deposit to rescind the contract and then sell the property again at the full price.
I am selling and purchasing
If you are selling and purchasing at a higher value and your buyer has a reduced deposit, you may be required to make up the difference between the reduced deposit on your sale and the full 10% deposit on your related purchase. If this situation arises, then you should discuss this with your conveyancer to weigh up the risks.
If you are purchasing for less than you are buying, then this risk would be reduced.
It is rare that sale and purchases fall through after exchange of contracts. However, there is always a risk this might occur and you would need to consider the risks carefully and your individual circumstances before accepting a reduced deposit. It is important you speak to your conveyancer before making a decision.
Please note this article is provided for general information purposes only to clients and friends of Hayward Moon Limited. It is not intended to impart legal advice on any matter. Specialist advice should be taken in relation to specific circumstances. Whilst we endeavour to ensure that the information in this article is correct, no warranty, express or implied, is given as to its accuracy, and Hayward Moon Limited does not accept any liability for error or omission.
