When Do You Pay the Deposit for a House

When Do You Pay the Deposit for a House

Buying a home is a major financial commitment, and one of the most significant steps in the process is paying the deposit. This payment represents a key milestone in any property transaction, marking the point at which both buyer and seller legally commit to completing the sale. Knowing exactly when the deposit is due, how it is paid and what it means for your home buying journey is essential for a smooth and confident purchase. Whether you are a first time buyer or a seasoned mover, understanding how the deposit fits into the broader process can help avoid delays, confusion and last minute stress.

What Is the House Deposit in a Property Purchase

In the UK, the deposit refers to the amount of money the buyer puts towards the purchase price of the property. It is not to be confused with the mortgage deposit paid to the lender as part of securing a loan, although the two are closely related. The deposit discussed in the legal process of buying a home is usually ten per cent of the agreed purchase price and is paid to the seller's solicitor when contracts are exchanged. This payment shows the buyer’s firm intention to proceed and secures the deal in a legally binding way.

When Is the Deposit Actually Paid

The deposit is typically paid on the day that contracts are formally exchanged. Exchange of contracts is a crucial step in the home buying process where both parties sign and legally commit to the sale. Once exchange has taken place, neither side can pull out without serious legal and financial consequences. At this point, the buyer transfers the deposit funds to their solicitor, who then passes them on to the seller's solicitor as part of the agreement. The remaining balance, usually funded by a mortgage or other means, is paid on the day of completion.

Paying the Deposit Before Exchange

While the deposit is not paid until exchange, buyers are often required to ensure the funds are available in advance. This means that, in the days leading up to exchange, you should be ready to transfer your deposit into your solicitor’s client account. Solicitors usually request cleared funds a day or two before the planned exchange date to avoid any banking delays. This preparation ensures that the solicitor can act immediately when both parties are ready to proceed. In some cases, if you are also selling a property and using the proceeds as a deposit, your solicitor may arrange to transfer those funds as part of a same day chain.

How Much Deposit Is Required

The standard deposit required at exchange is ten per cent of the purchase price. However, in some cases this can be negotiated. If a buyer is purchasing with a mortgage that only requires a five per cent deposit, and they do not have the full ten per cent in cash, the seller may agree to accept a lower deposit. This must be discussed and agreed early on in the process and reflected in the contract. The full purchase amount is still payable on completion, so any shortfall at exchange must be made up through mortgage funds or personal savings on the final day.

What Happens to the Deposit After Exchange

Once paid, the deposit is held by the seller’s solicitor and forms part of the purchase price. It is not a separate or additional fee. If the sale completes as planned, the deposit simply contributes to the total amount due. If, however, the buyer fails to complete after exchanging contracts without a valid legal reason, they risk losing the deposit entirely. The seller is entitled to retain it as compensation for breach of contract. This is why buyers are strongly advised to have all finances in place and be fully committed before reaching the point of exchange.

What if You Are Buying and Selling at the Same Time

Many buyers are part of a property chain, selling one home to purchase another. In these cases, the deposit received from your buyer is often passed up the chain to your seller. This process is handled by solicitors who coordinate the exchange and ensure that deposit funds move smoothly between parties. If the sale price of your current home is lower than the price of the property you are buying, you may need to top up the deposit to meet the ten per cent requirement. Again, this should be prepared in advance to avoid delays during exchange.

Using a Gifted Deposit

Some buyers receive help from family or friends in the form of a gifted deposit. If you are using a gift to cover part or all of the deposit, you must inform your solicitor and mortgage lender early in the process. Lenders require confirmation that the money is a genuine gift and not a loan. A formal declaration may be needed from the person giving the gift, stating that they do not expect repayment and will have no claim on the property. This paperwork must be in place before exchange so the deposit can be paid without issue.

Final Thoughts

The deposit is a vital part of the home buying process and signals the moment your purchase becomes legally binding. It is usually paid at the point of exchanging contracts and forms part of the total price of the property. By understanding when and how the deposit is paid, ensuring funds are available and working closely with your solicitor, you can approach this stage with clarity and confidence. Whether you are a first time buyer or involved in a complex property chain, planning ahead ensures a smoother journey to completion and keys in hand.