Contract deposit when using equity as mortgage deposit, and top-up mortgage to release equity

[nowning]

We're hoping to trade up and we have a query on the contract deposit. We're hoping to use the equity in our house for the mortgage deposit and fees, as we do not have enough savings to pay the typical contract deposit of 10% of purchase price, and wouldn't be able to save it for a few years. We are not in a position to live with anyone else between and selling and buying, and do not want to have to find rental accommodation in between, so we want to sell/buy on the same day and move directly. We're in no rush to move, so if the conveyancing gets delayed then there's no issue as long as we can stay in our current house while the conveyancing happens.

The questions in short:
1. Can our solicitor ask the vendor's solicitor to have a small contract deposit, e.g. €10,000 instead of €38,000, due to my funds being tied up in equity? Is this common and mundane, highly irregular or somewhere in the middle?
2. If we definitely need the 10% in cash, would it be rational to use a top-up mortgage to free up cash for this? Is that using a very complex system just to make some cash appear, or a smart move?

DETAILS
Current house value: €280,000 (valued about 2 years ago), Galway suburbs
Current morgage balance: €170,000
Therefore there's equity of €110,000
Savings: €14,000
Combined gross income: €100,000
Desired house: €350,000-€380,000, Kinvara / Athenry / similar town near Galway

We want to buy for up to €380,000 with a €300,000 mortgage, with the balance of €80,000 coming from the equity and the remaining €30,000 going towards fees - solicitor (buy & sell), estate agent, stamp duty, surveyor, valuation etc. Overall we have enough available via the equity but I'm trying to understand the timing of when various things are due.

I know we'll need to pay the booking deposit, probably a flat fee of €5,000, so that can come out of savings, but do we need to have the balance of 10% (€38,000 total) for the contract depoit, or can our solicitor ask the seller's solicitor to use a lower contract deposit as our funds are tied up in equity that will become part of the sale? Would that be a normal thing to do or would it be very unusual?

TOP-UP MORTGAGE TO RELEASE EQUITY
If we do absolutely need to have the contract deposit available at the time of signing the contract, would it make sense to get a top-up mortgage of the existing house, which would release equity that could be used for the contract deposit? I figure I could top up the mortgage to exactly 80% LTV, so I'd take out a mortgage of 224,000 with my existing mortgage provider, then I would have €54,000 (difference between new mortgage value and existing mortgage value), and that becomes the cash available to me to pay the contract deposit. This isn't "bridging finance" as it's not tied to the sale or purchase in any way - if neither proceeded, then I've just changed my mortgage and will pay it back. The only complexity/cost is this would require engaging a solicitor. I would imagine it would be relatively cheap for the solicitor as there's no conveyancing happening, so less than €1,000, but would the process of arranging the top-up mortgage eat a few months in admin time, during which I'm not able to sell? Would the banks be concerned that I've just taken out a "new" mortgage and am immediately looking to take out another again immediately afterwards?

 

[TheJackal]

A few comments based on my house purchase

Firstly, this must be a fairly common issue that solicitors and EAs have encountered before, where seller relies on equity from sale for deposit for new house.

The initial fee at Sale Agreed, say 5K, would go to their EA. The balance to get to 10% goes to your solicitor. They might accept <10% in good faith as they don't get any money til closing anyway (the 5K with solicitor is refundable until you both sign contracts).

30K towards fees is too much, 1% stamp duty so say 3,800. Solicitor about same. 10-12K seems enough.

I'd say you'll be incredibly lucky to buy/sell same day and move in. You're dealing with 3 different households (yourself, person buying your house, person selling their house to you) and 3 differrent solicitors (yours for both, one for house you buy, one for person buying your house).

If you absolutely need the 38K is cash, then you are currently 24K short (380K mortgage x 10% less 14K in savings).
Keep saving away like mad from now. Buying and selling will take months so you'll have more saved by then. Can always get a short credit union loan to get passed any cross over period and repay it all when house sale in finished.

 

[_OkGo_]

The questions in short:
1. Can our solicitor ask the vendor's solicitor to have a small contract deposit, e.g. €10,000 instead of €38,000, due to my funds being tied up in equity? Is this common and mundane, highly irregular or somewhere in the middle?
2. If we definitely need the 10% in cash, would it be rational to use a top-up mortgage to free up cash for this? Is that using a very complex system just to make some cash appear, or a smart move?

1.You can ask but I would be surprised if they agreed. I'm assuming these are new builds due to the 10% deposit so they are normally quiet strict about the 10% deposit as it is non-refundable once contracts are signed. However, in our case, it was 5 months between booking deposit (5k EA) and the remainder of the 10% contract deposit when contracts were signed so you might have some time to get it together
2. Likewise, you can ask but I would be amazed if a bank gave you this top up. Most top-ups are tied to home improvements and you need to show sufficient evidence of the cost to get the top up. They are very unlikely to give you a booking deposit for another property on your current mortgage

Can always get a short credit union loan to get passed any cross over period and repay it all when house sale in finished.

I would be very careful about doing anything like this. If you are only at 'Approval in Principal' stage, you should not take out any other borrowings as it could impact on your affordability when it comes to getting the Loan offer. Worst case scenario, your mortgage will be rejected after you have already signed contracts and then you will be in real trouble

You may not want to rent but it is probably your best option, how long would you expect it to take to close on the new house? Or alternatively, you need a family member to stump up the €24k that you need along with your current savings and pay them back as soon as your sell your current PPR

 

[Early Riser]

Can our solicitor ask the vendor's solicitor to have a small contract deposit, e.g. €10,000 instead of €38,000, due to my funds being tied up in equity? Is this common and mundane, highly irregular or somewhere in the middle?

Highly irregular and I would be very surprised if a vendor's solicitor would agree to it. The €38,000 would include the booking deposit you pay to the EA. By the way, this may be more than €5,000 on a house valued at €380,000. It will depend on the fees and charges agreed between the EA and the vendor, as the EAs will normally seek to ensure that there is at least enough in the booking deposit to cover all of their fees and charges, inclusive of VAT.

 

[tracer900]

I'm going through this at the moment. 99% of the way through it. Currently waiting for our buyers funds to land and then both the sale of our home and purchase of our next home will close on the same day.

Prior to beginning this process I spoke to 2 people who had recently done the same thing. During my process a colleague of mine did the same thing. Based on my small sample size it would appear to be a somewhat regular undertaking.

The only money needed for us up front so far has been the estate agent listing fees and the booking deposit. Less than 10k all in. (Surveyor fees etc. followed)

The full amount minus booking deposit will be transferred by our solicitor on day of closing.

It has been stressful - still is - and there is an added pressure on being in the middle of the chain. You will not be entertained as a buyer until at bare minimum your property is listed for sale. Some agents will want you sale agreed before treating you seriously. We had an offer of 5k over the underbidder rejected as they were FTBs and we had a property to sell.

You are not guaranteed to have a laid back casual buyer willing to agree to buy your home and wait an indeterminate period of time for you to find the next property. Supply of desirable homes is very low and demand is high. This could work in your favour whole selling but will also work against you for buying.

 

[RedOnion]

1. Can our solicitor ask the vendor's solicitor to have a small contract deposit, e.g. €10,000 instead of €38,000, due to my funds being tied up in equity? Is this common and mundane, highly irregular or somewhere in the middle?

Yes, it's possible and common enough, but would be more likely to be 5%+ to be accepted. As @_OkGo_ it's a different story if it's a new build house.

As mentioned above, you will need to have at least enough cash to pay the 'booking deposit' to the estate agent. This is always enough to cover the estate agents commission, so they're not relying on receiving the money from solicitor later.

 

[Leo]

Based on my small sample size it would appear to be a somewhat regular undertaking.

Where abouts is this as a matter of interest? A number of agents in South Dublin will only accept offers from purchasers who are not in a chain and confirm they have full access to the funds required to close.

 

[tracer900]

Where abouts is this as a matter of interest? A number of agents in South Dublin will only accept offers from purchasers who are not in a chain and confirm they have full access to the funds required to close.

In my own case, selling in Lucan and buying in Co. Kildare. In my case when our offer was accepted we had already had a previous full loan offer issued (fell through after survey), were sale agreed and our buyers had signed contracts.

The other people would have been buying in Donabate, Ratoath & Greystones.

 

[nowning]

Thanks for all the replies so far. I'm hearing somewhat conflicting answers! I wonder if some of the difference is location-based, i.e. different practices in different parts of the country. That said, tracer900 seems to have positive experience in and near Dublin, which I expected would be the most difficult place.

A few clarifications:
We're looking to buy second-hand again, not a new build, in Co. Galway.
I haven't started any part of the process formally, just about to seek Approval In Principle (obviously want to understand what's possible first), then will seek a solicitor's advice, then appoint an estate agent to start the sale, and will finally only bid on the next house once we're taking bids on our own or have gone sale agreed.

30K towards fees is too much, 1% stamp duty so say 3,800. Solicitor about same. 10-12K seems enough.

I forgot I'd included about €10k in that number that we were going to hold back for other expenses too rather than fees, e.g. furniture/appliances. The largest part of this figure is estate agent fees, which I put at max 2.5% of sale price + VAT, so about €8k on top of what you mentioned.

I'd say you'll be incredibly lucky to buy/sell same day and move in. You're dealing with 3 different households (yourself, person buying your house, person selling their house to you) and 3 differrent solicitors (yours for both, one for house you buy, one for person buying your house).

It seems there are people that do it, maybe there's a degree of luck involved or maybe it varies by location? We have considered how we break the other parts of the chain, e.g. try to sell to FTB or cash buyers, and look to buy a place that's already vacated (a few we've seen seem to be already).

1.You can ask but I would be surprised if they agreed. I'm assuming these are new builds due to the 10% deposit so they are normally quiet strict about the 10% deposit as it is non-refundable once contracts are signed. However, in our case, it was 5 months between booking deposit (5k EA) and the remainder of the 10% contract deposit when contracts were signed so you might have some time to get it together

No, second-hand. I've just chosen the number 10% as I've inferred from other posts that this is standard for all houses. It sounds from these responses like it's a bigger deal for new-builds? When I bought our current house it was only a couple of weeks between sale agreed and contract signed, maybe I was lucky, or maybe it's just easier with second-hand.

2. Likewise, you can ask but I would be amazed if a bank gave you this top up. Most top-ups are tied to home improvements and you need to show sufficient evidence of the cost to get the top up. They are very unlikely to give you a booking deposit for another property on your current mortgage

Ok, so top-up needs to be tied to something concrete, I was wondering if they would do it without any specifics as it's secured against your home's value, but sounds like that's not the case.

You may not want to rent but it is probably your best option, how long would you expect it to take to close on the new house? Or alternatively, you need a family member to stump up the €24k that you need along with your current savings and pay them back as soon as your sell your current PPR

Renting certainly cuts off this entire issue. It's more of a personal choice not to. We are comfortable where we are and don't like the idea of trying to find a place that will accept people that might not be around for long - I'd be hoping we'd be done in maybe 3 months but certainly less than a year - also rent is likely to be much higher than our current mortgage, we'd have to move twice or put our belongings in storage, and we'd have to find somewhere that will accept our two cats! Even just changing addresses was a big task last time out, with the catch-22 of needing proof of address from one place to give as proof of address to another. I suppose we can try the current plan and if it doesn't work out, renting would be the fallback.

I'm going through this at the moment. 99% of the way through it. Currently waiting for our buyers funds to land and then both the sale of our home and purchase of our next home will close on the same day.

Prior to beginning this process I spoke to 2 people who had recently done the same thing. During my process a colleague of mine did the same thing. Based on my small sample size it would appear to be a somewhat regular undertaking.

The only money needed for us up front so far has been the estate agent listing fees and the booking deposit. Less than 10k all in. (Surveyor fees etc. followed)

The full amount minus booking deposit will be transferred by our solicitor on day of closing.

It has been stressful - still is - and there is an added pressure on being in the middle of the chain. You will not be entertained as a buyer until at bare minimum your property is listed for sale. Some agents will want you sale agreed before treating you seriously. We had an offer of 5k over the underbidder rejected as they were FTBs and we had a property to sell.

You are not guaranteed to have a laid back casual buyer willing to agree to buy your home and wait an indeterminate period of time for you to find the next property. Supply of desirable homes is very low and demand is high. This could work in your favour whole selling but will also work against you for buying.

This entire post sounds as if the answer to my primary question is simply "yes, I know three people who have just done it and I'm in the middle of it myself".

Yes, it's possible and common enough, but would be more likely to be 5%+ to be accepted. As @_OkGo_ it's a different story if it's a new build house.

As mentioned above, you will need to have at least enough cash to pay the 'booking deposit' to the estate agent. This is always enough to cover the estate agents commission, so they're not relying on receiving the money from solicitor later.

Yeah we could come up with something more like 5% without much difficulty.

Aside from tracer900 seemingly showing that it can be done and has been done recently by multiple people, where's the next port of call? I'm thinking it's very much down to solicitors rather than estate agents? Should I just find solicitors nearby and see if they have recent experience of it?

Also I notice that the main area we're looking at is pretty much entirely served by a single estate agent - when is the right time to contact him? Although it's far too early to view or bid, is it valuable to get in touch with him so he updates us when more properties become available and just generally gets to know us and that we're serious about moving there? How much, or more more accurately, how little of our situation should he know? I figure he needs to know we'll be creating one chain link, as that will be a factor in accepting our bids, but probably doesn't need to know any of this discussion around contract deposit as it's a matter for the two solicitors, not him?

 

[Early Riser]

I forgot I'd included about €10k in that number that we were going to hold back for other expenses too rather than fees, e.g. furniture/appliances. The largest part of this figure is estate agent fees, which I put at max 2.5% of sale price + VAT, so about €8k on top of what you mentioned.

2.5% is much too high for EA fees and especially how quickly houses are moving at the moment. If your house is in an any way attractive position you should be looking at somewhere in the region of 1% - 1.5% (plus VAT). Also, you do not have to pay this over to the EAs - they will take their fees from the booking deposit on your own house once your sale goes through. They may well require you to pay any advertising/promotion costs up front - maybe in the region of €500-€600. Similarly the solicitor should work on collecting his/her fees from the proceeds of your house sale when it goes through (negotiate this at the outset). You will probably have to pay them the stamp duty up front at purchase. So you have more money than you think to put towards a deposit.

You may want to consider something towards removal costs if you are bringing your own furniture, etc , unless you can do this yourselves. I would suggest you severely curtail the budget you are withholding for new furniture, etc. so as to ensure that you have enough for the contract deposit. I take the points above that you may not require the full 10% but the booking deposit alone will certainly not be enough to cover it. Don't forget that this contract deposit can be withheld and lost (in part or in full) if you do not complete so the vendor's solicitor will want it to be substantial.

Normally I would suggest to go to plenty of viewings in the area to get an idea of what is on offer but this is not possible at the moment. And EAs do not seem to be too interested in prospective buyers currently unless they can demonstrate that they are funded and ready to proceed to bid. You should certainly be looking around for a solicitor - see if you can get a recommendation for someone experienced in conveyancing. You should also ensure that you have your NPPR discharge in order, and have the LPT on your own house up to date (including payment for this year).

I would suggest looking for recommendations on EAs for your own house. Be care of some who will hold out the prospect of the sun, moon and stars when they are selling themselves to you - until you sign the contract agreement.

 

[RedOnion]

figure he needs to know we'll be creating one chain link, as that will be a factor in accepting our bids, but probably doesn't need to know any of this discussion around contract deposit as it's a matter for the two solicitors, not him?

Yes. The agent will want to know if your offer is subject to you selling your own house. The exact mechanics of deposit becomes less important.

If it comes down to you bidding against another person, the agent will be recommending to seller which if you to sell to. It's not always the highest bidder. If the sellers want a quick sale, they'd normally be willing to take 5k less from someone that can close quickly. When I sold (south Dublin), there were a large number of bidders. We didn't really consider anyone who didn't have mortgage approval in place, as I wanted a quick close, and there were sufficient bidders anyhow.

So, you need to put yourself in the best light. Have your own house listed before you make an offer. There is some merit in considering using the same agent to sell your house as the one you want to buy - they become motivated as they've 2 commissions riding on it.

Re accepting a lower deposit, it'll come down to the sellers solicitor. A standard contract has 10%, but your solicitor just proposes a different amount. Once they know you're serious, it's generally accepted. But don't be asking for both a lower deposit, and a 6 month closing period so you can get your own house on the market!

 

[nowning]

Thanks for the responses, they're really helpful and I'm feeling more knowledgeable and confident now. I thought I was getting email updates on this thread so I didn't see those last two responses until today. I'll update this thread as we go through the process - we're still in the "homework" stage.

 

[Coldwarrior]

2.5% of sale price

I'm not familiar with what estate agents charge in Galway, but 2.5% seems way too much, I paid half that to one of the biggest nationwide estate agents when selling my previous house in Dublin.

If the sellers want a quick sale, they'd normally be willing to take 5k less from someone that can close quickly.

Can confirm this, we lost out on a house this way even though our bid was 10k higher than the next best, they were cash buyers and our house was still up for sale.

 

[Leo]

Can confirm this, we lost out on a house this way even though our bid was 10k higher than the next best, they were cash buyers and our house was still up for sale.

We even lost out on one where the other buyer was cash and we were funding via mortgage where we didn't have to sell!

 

[nowning]

I'm not familiar with what estate agents charge in Galway, but 2.5% seems way too much, I paid half that to one of the biggest nationwide estate agents when selling my previous house in Dublin.

That's great to hear, we're just intentionally budgeting very conservatively to make sure we're well covered. Will be able to replace budget numbers with real numbers once we get quotations.

 

[Pixy91]

We are in the middle of trading up. We had always planned to do it but we ended up doing it alot sooner than we thought.

We put the 5k down when we went sale agreed on the house we wanted. Our house was in a bidding war at this stage, we went sale agreed on the house we are selling 2 weeks after going on the one we are buying.

Aa far as the 10% deposit ours would be 22,600 but we don't have that. Our solicitor is aware of this and has asked the sellers solicitor about accepting a lower deposit and he said it shouldn't be a problem as we've shown major in interest in pushing forward with the sale and also there were no other offers in on the house, we were the only ones interested in it.

We are hoping to close in and around the same time but are prepared to move in with family for a few weeks if needed.