“Property Deposits – Confused?”

Property Deposits

A confusing property term is the word “deposit”, especially among first-time buyers who have previously been renting.  In our article, we explain the different types of property deposits.

For example, consider this statement:

“When Oliver & Phoebe got their deposit back they had enough for their deposit, although this was not enough to cover their deposit.”

In the example above, the three uses of the word “deposit” can be perplexing, unless understood in their respective context.

Deposits

1. The “rental” deposit:

A landlord or letting agent ‘holds’ an amount of money as security against damages.  The landlord or agent returns the rental deposit to a tenant at the end of the tenancy.  However, the tenant must return the property in good condition, failure in which the Landlord may ask for deductions to be made in reparation.

2. The “mortgage” deposit:

This is the difference between the purchase price of a property and the amount of mortgage available on that property. So, if a buyer qualifies for a 95% mortgage (i.e. 95% of the agreed purchase price) they would need to have raised a “deposit” (or “cash” even though this may not be physical pound notes) for the remaining 5%.

3. The “Contract” deposit:

When contracts for the sale of a property are exchanged, the deal becomes binding.  It is usual for a sum of money to be put down prior to the whole amount becoming due on completion a few weeks later. This contract deposit is usually 10% of the purchase price. However, it is not uncommon, for practical reasons, for the amount actually required on exchange to be for a smaller amount.  Sometimes it is for even nothing, as a concession.  This said, should the buyer fail to complete, the full 10% would still become payable contractually.

So you should now have a better understanding of the strange statement above.  Its meaning is:

“When Oliver & Phoebe got their rental deposit back they had enough for their mortgage deposit, although this was not enough for their contract deposit.”

Call Callaways on 01273-735237 or email enquiries@callaways.co.uk if you have any questions about the terminology or processes involved in buying or selling a property. We’re here to help!