One of the most important financial moments in buying a property is the payment of the deposit, and there is sometimes confusion about when this happens and how it relates to the mortgage deposit. Understanding the distinction and the timing helps buyers prepare financially and avoid last-minute surprises.

Two Different Deposits

There are two senses of the word deposit in property transactions. The first is the mortgage deposit, which is the part of the purchase price funded by the buyer from their own savings rather than borrowed from a lender. This deposit might be five, ten, or twenty percent or more of the purchase price, and it is one of the key determinants of mortgage eligibility and interest rate. The mortgage deposit is in the buyer's bank account and available to use; it is not paid to anyone at the point of making an offer.

The second is the exchange deposit, which is the cash amount transferred to the seller's solicitor at exchange of contracts. These are related but different amounts and different timings.

When the Exchange Deposit Is Paid

The exchange deposit is paid at exchange of contracts, typically ten weeks or more after the offer is accepted, when both parties commit legally to the transaction. At the moment contracts are exchanged, the buyer's solicitor transfers the exchange deposit, typically ten percent of the purchase price, to the seller's solicitor. This payment creates the legal commitment; if the buyer withdraws after exchange without a valid contractual reason, they forfeit the exchange deposit.

Where the Exchange Deposit Comes From

The exchange deposit typically comes from the buyer's savings, the mortgage deposit. If the mortgage deposit is less than ten percent, the buyer's solicitor may need to negotiate with the seller to accept a lower exchange deposit, or the buyer may need to fund the full ten percent from savings. In chain transactions, the exchange deposit from a lower property in the chain can often be passed up the chain, reducing the cash needed at exchange.

Summary

The exchange deposit, typically ten percent of the purchase price, is paid at exchange of contracts, not at the point of making an offer. This is distinct from the mortgage deposit, which is the buyer's own savings contribution to the purchase price. The exchange deposit is transferred to the solicitor several days before exchange to ensure it is available as cleared funds on exchange day.