Your mortgage deposit is your total contribution to the purchase price (typically 5–10% for first-time buyers). Your exchange deposit is the portion of that money (usually 10% of the price), paid to the seller’s solicitor at exchange of contracts to make the deal legally binding.
Same money, two different jobs at two different stages of the home buying process.
What’s the difference between a mortgage deposit and an exchange deposit?
One of the most common points of confusion when buying a house for the first time is hearing your solicitor ask for “the deposit” when you thought your deposit was already sorted with your mortgage lender. Here’s the distinction:
| Mortgage deposit | Exchange deposit | |
|---|---|---|
| What it is | Your contribution to the purchase price, the lender funds the rest | The sum paid to the seller when contracts are exchanged |
| Typical amount | 5–20% of the property price | 10% of the purchase price (often negotiable to 5%) |
| Who it goes to | Forms part of the completion funds | The seller’s solicitor, held as security |
| When it’s needed | At completion | At exchange of contracts |
| What it does | Determines your loan-to-value and mortgage rate | Makes the contract legally binding so you lose it if you pull out |
Do I need to find two deposits?
No, and this trips up almost every first-time buyer. The exchange deposit comes out of your mortgage deposit, it’s simply paid earlier.
Take a worked example. If you’re buying a £200,000 home with a £20,000 (10%) deposit:
- Your £20,000 goes to your solicitor before exchange
- That £20,000 is passed to the seller’s side at exchange of contracts
- On completion, your lender sends the remaining £180,000
You never need £40,000. It’s one deposit doing two jobs.
Can I exchange contracts with a 5% deposit?
Yes. Don’t panic, and don’t try to find the extra 5%.
If you’re buying with a 95% mortgage, your solicitor simply asks the seller’s solicitor to accept a 5% exchange deposit instead of the usual 10%. Sellers agree to this in the vast majority of sales, especially with first-time buyers.
Just tell your solicitor early that you have a 5% deposit, so it can be agreed before exchange day rather than becoming a last-minute hold-up.
When do I pay my house deposit?
Your solicitor will ask for your deposit funds, cleared, in their client account, a few days before the planned exchange date.
This is also why the anti-money laundering checks on your ID and source of funds happen early: your solicitor can’t accept your deposit until those checks are done. Get your documents in promptly and the money side runs smoothly.
The typical sequence looks like this:
- Transfer your deposit to your solicitor’s client account (verify their bank details by phone first as payment fraud targets exactly this moment)
- Contracts are exchanged and the deposit passes to the seller’s solicitor
- The purchase is now legally binding, with a fixed completion date
- On completion day, your lender releases the mortgage funds and the property is yours
What happens to my deposit if the sale falls through?
Timing is everything:
- Before exchange: either side can walk away, and your deposit money simply stays in your solicitor’s client account so you get it back.
- After exchange, if you fail to complete: the deposit is the seller’s security. They can keep it and may claim further losses.
- After exchange, if the seller fails to complete: you’re entitled to your deposit back with interest, plus potential compensation.
That’s the whole purpose of the exchange deposit, it’s what turns a handshake into a binding contract.
FAQ
It’s part of it. The exchange deposit (usually 10% of the price) is paid out of your overall mortgage deposit at exchange of contracts, you don’t need to find a separate sum.
Usually, yes. If you have a 5% deposit, your solicitor can negotiate for the seller to accept a 5% exchange deposit. Most sellers agree, but flag it early.
Cleared funds must be in your solicitor’s client account a few days before the planned exchange date, after your ID and source of funds checks are complete.
Before exchange of contracts, no, you get it back. After exchange, yes. The seller can keep the exchange deposit and may claim additional losses if you fail to complete.
Key takeaways for first-time buyers
The “two deposits” are really one: the exchange deposit is just part of your mortgage deposit doing its job a little earlier. Once you know that, the process is far less daunting.
Ready to get moving? If you’re buying your first home and want a conveyancing team that explains every step in plain English, get in touch for a quote or fill self form to get a free quote we’ll tell you exactly when your deposit is needed and what to have ready.
