What deposit do I pay my conveyancing solicitor?

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There are two types of ‘deposit’ involved in a property transaction and the answer to the question depends on which form of deposit you are referring to.

1.  A mortgage deposit

This is not strictly a deposit, and is simply terminology used by mortgage lenders and which often confuses people. A mortgage company might say, “if you put down a deposit of 20%, we shall lend you the rest”. The 20% is not a deposit as such. The mortgage lender is just trying to say they will lend 80% if you fund the rest. The rest of what? The rest of the purchase price. It is true that ultimately, you will need to let your conveyancing solicitor have all of this amount that you are paying but they will want it combined with the legal fees set out in their conveyancing quote too, and your conveyancing solicitor will usually ask for this larger total amount in two parts. An initial smaller payment (typically 10% of the purchase price) just before exchange of contracts, and then the balance nearer completion. But it is the small payment which leads us on to the second and proper type of deposit.

2.  The exchange deposit

This is the smaller payment just referred to, and is the amount of money your conveyancing solicitor only ever means when they talk of a deposit. This is because this smaller payment is very important because to exchange of contracts in your house purchase, your conveyancing solicitor will have requested money from you which must be paid to the seller’s solicitor, as a ‘good-faith’ payment – called a deposit – to act as an incentive for you not to pull out and to in fact proceed to completion. If you pull out after exchange of contracts, then the law allows the seller to forfeit 10% of the purchase price from you, and so the usual deposit paid is 10%. Less if negotiated lower, or if you are obtaining over 90% of the purchase price by a mortgage, and usually less if you are also selling and using as a deposit whatever is coming in from your own buyer.

So when asking a conveyancing solicitor when do you send them ‘your deposit’, then realise (1) they will need you to fund the difference between the purchase price plus legal fees, less the mortgage, but (2) they will not need it all in one go, but in fact will only want enough from it as represents the exchange deposit leaving you to earn interest in your own bank account until the rest is needed nearer completion.

NOTE – when paying a deposit to your conveyancing solicitor, try to avoid cheques as they can take up to 6 working days to clear which can frustrate parties in a conveyancing chain who see this as a pure waste of time and therefore you causing undue delay. Instead consider an instant bank transfer.