Reduced Deposits Explained: What Buyers and Sellers Need to Know before Exchange

When you exchange contracts (legally commit to buy or sell) on a property in the UK, a deposit will be payable upon exchange of contracts by the buyer and normally, a deposit of 10% of the purchase price will be required. 

This deposit will usually be held as “Stakeholder” by the Seller’s Solicitors, until Completion takes place.  This means that the money is held by the Seller’s Solicitor, and they cannot give it to their client. They are allowed to send it up a chain for a related purchase, as long as the Lawyers above hold as Stakeholder as well.

If all goes well, the deposit will be deducted from the total amount payable on completion. If things go wrong, and Completion fails to take place due to the fault of the Buyer (which includes if a related sale goes wrong) the deposit can be forfeited as part of a failed completion.

For many reasons, less than 10% of the purchase price may be available. E.g. if the Buyer is relying on proceeds from selling their own property.

In these circumstances, a reduced deposit may be offered. 5% is generally acceptable by many Lawyers/clients. Less than 5% is more likely to be questioned/refused.

A reduced deposit does not mean the buyer pays less overall, it just means less is paid upfront at exchange.

For Sellers

The general advice is to push for the full 10%, but circumstances are often such that the Buyer cannot readily source such funds. You will need to make the commercial decision as to whether to proceed with a lesser deposit, or otherwise potentially risk delaying the sale or even causing the chain to collapse.

Careful consideration should be given to the reasons provided as to why the full 10% is not available.  This could be because the Buyer is getting a 95% mortgage, or the funds are tied up in a related sale.

The risk is increased if you have an onward purchase to consider. You will need to provide a deposit on the onward purchase, which would usually be taken from the deposit on your sale. The smaller the amount of money readily available on your sale increases the chances of you having to make up the difference on the purchase if something were to go wrong.

Whilst the full 10% will still be payable, it is much more reassuring knowing the full amount is safe in your Lawyer’s Client Account.  In the event of a default, you would need to sue the Buyer for breach of contract to get the rest of the deposit, which may be easier said than done, and incur significant additional legal costs.

For Buyers

Under the Contract, you will at all times remain liable to pay the remaining part of the 10% deposit should you not complete the purchase on time due to your breach of the Contract.

If you are not in a position to provide the full 10% upfront, then it is likely that will be the case if the transaction fails to complete and you are sued for the balance of deposit funds.  Unless one of the more common scenarios apply (e.g. money is tied up in the sale) you should consider the reasons as to why this is and whether you are able to afford the property.

How Pinney Talfourd can help

Whether you’re navigating reduced deposits or the complexities of a property chain, our experienced Residential Property team is here to help. We provide clear, practical advice to ensure your transaction proceeds smoothly and your interests are protected every step of the way.

Get in touch with us today on 01277 211 755 or email mail@pinneytalfourd.co.uk to speak with a member of our team.