When buying a property in the UK, two key financial milestones are the deposit payable on exchange and the balance funds due on completion. Understanding these terms is crucial for navigating the property purchase process smoothly.

Deposit Payable on Exchange

The deposit payable on exchange is typically 10% of the purchase price. This deposit is paid when contracts are exchanged between the buyer and the seller, marking the point at which the transaction becomes legally binding.  The deposit serves several purposes:

  1. Commitment: It demonstrates the buyer’s commitment to the purchase.
  2. Security: It provides the seller with security that the buyer is serious about completing the transaction.
  3. Part Payment: It acts as part payment of the total purchase price.

The deposit is usually held by the seller’s solicitor in a client account until completion. If the buyer fails to complete the purchase, the seller may be entitled to keep the deposit and potentially claim additional damages.

Balance Funds Due on Completion

The balance funds due on completion are the remaining amount of the purchase price that the buyer needs to pay to finalise the transaction. This includes:

  1. Remaining Purchase Price: The total purchase price minus the deposit already paid, and the mortgage advance that you receive, if any.
  2. Additional Costs: Any additional costs such as legal fees, stamp duty, and other associated expenses.

Completion is the final step in the property transaction process, where ownership of the property is transferred from the seller to the buyer. On the completion day, the buyer’s solicitor transfers the balance funds to the seller’s solicitor, and the keys to the property are handed over to the buyer.

Key Differences

  • Timing: The deposit is paid at the exchange of contracts, while the balance funds are paid on the completion day.
  • Purpose: The deposit secures the transaction and shows commitment, whereas the balance funds complete the payment for the property.
  • Legal Implications: The exchange of contracts makes the transaction legally binding, while completion finalises the transfer of ownership.

Understanding these differences helps buyers and sellers navigate property transactions more effectively, ensuring a smoother and more secure experience. Whether you’re buying your first home or moving to a new property, careful planning and the right guidance can help you secure your dream home.

For further information and advice, please contact the Residential Conveyancing team at Fisher Jones Greenwood LLP on 01206 704043 or email [email protected] or get a quote here.