Exchange Deposit Explained

Exchange Deposit Explained: How Much Do Buyers Pay?

The exchange deposit is the money a buyer pays when contracts are exchanged. It confirms the buyer’s legal commitment to complete the property purchase on the agreed completion date.

Many buyers confuse the exchange deposit with their mortgage deposit. They may be the same amount, but they serve different purposes and are not always paid at the same time.

Simple answer: The usual exchange deposit is 10% of the purchase price, but a reduced deposit may be agreed if the buyer is using a 95% mortgage, buying and selling in a property chain or using another approved arrangement.

This guide focuses mainly on property purchases in England and Wales. Scotland uses the conclusion of missives, while Northern Ireland has a different conveyancing process.

What Is an Exchange Deposit?

The exchange deposit is a payment made under the purchase contract when the buyer and seller exchange contracts.

After exchange, the purchase becomes legally binding. The deposit provides the seller with security that the buyer intends to complete the purchase.

The buyer normally sends the money to their solicitor or licensed conveyancer before exchange. The conveyancer then deals with the deposit according to the contract.

The exchange deposit forms part of the purchase price. It is not an additional charge paid on top of the property price.

Exchange Deposit vs Mortgage Deposit

Deposit Type	What It Means	When It Is Used
Mortgage deposit	The buyer’s financial contribution towards the property price.	Used with the mortgage to fund the complete purchase.
Exchange deposit	The contract deposit paid when exchange takes place.	Shows the buyer’s legal commitment to complete.
Completion balance	Any remaining buyer funds, mortgage money and applicable charges.	Transferred before or on completion.

Example With a 90% Mortgage

A buyer purchases a property for £300,000 using a 90% mortgage:

Mortgage: £270,000
Buyer’s mortgage deposit: £30,000
10% exchange deposit: £30,000

The buyer may pay their complete £30,000 contribution at exchange. The lender then supplies the £270,000 mortgage funds for completion.

Example With a 95% Mortgage

A buyer purchases the same £300,000 property using a 95% mortgage:

Mortgage: £285,000
Buyer’s mortgage deposit: £15,000
Standard 10% exchange deposit: £30,000

The buyer may not have £30,000 available because their planned contribution is only £15,000. Their conveyancer may therefore ask the seller to accept a reduced 5% exchange deposit.

How Much Is the Exchange Deposit?

The traditional exchange deposit is 10% of the agreed purchase price.

Property Price	10% Exchange Deposit	5% Reduced Deposit
£200,000	£20,000	£10,000
£300,000	£30,000	£15,000
£400,000	£40,000	£20,000
£500,000	£50,000	£25,000

A seller does not automatically have to accept less than 10%. Any reduced exchange deposit should be agreed through the buyer’s and seller’s conveyancers before exchange.

Can You Exchange With a 5% Deposit?

Yes, exchange with a 5% deposit may be possible, particularly where the buyer has a 95% loan-to-value mortgage.

Your conveyancer must request and record the reduced deposit in the contract. Do not assume the seller will automatically agree simply because your lender has approved a 95% mortgage.

Important: Paying only 5% at exchange may not always limit your legal liability to 5%. Depending on the contract, the seller may be able to claim the unpaid balance of the traditional 10% deposit if you fail to complete.

Ask your conveyancer to explain exactly what you could owe if completion does not take place.

How Does the Deposit Work in a Property Chain?

If you are selling one home and buying another, the deposit received from your buyer may be used towards the exchange deposit on your purchase.

Deposits are often passed up the property chain so that every buyer does not need to provide a completely separate 10% cash deposit.

Example

You sell your current home for £250,000 and receive a £25,000 exchange deposit. You are buying another property for £350,000, where a standard 10% deposit would be £35,000.

The seller may agree to accept the £25,000 being passed up the chain, or you may be asked to provide a £10,000 top-up.

Your conveyancer should confirm:

How much deposit is coming from your buyer.
Whether it can be used for your purchase.
Whether the seller will accept a reduced amount.
Whether you need to provide additional money.
What could happen if someone in the chain fails to complete.

Who Does What With the Exchange Deposit?

Person	Responsibility
Buyer	Provides the deposit and evidence showing where the money came from.
Buyer’s conveyancer	Confirms the required amount, completes checks and transfers or holds the money under the contract.
Seller’s conveyancer	Receives or controls the deposit according to the agreed contract terms.
Seller	Decides, with legal advice, whether to accept a reduced deposit.
Mortgage lender	Confirms the mortgage amount and approves how the buyer’s contribution is funded.
Mortgage adviser	Helps ensure the deposit information matches the mortgage application.

Where Is the Exchange Deposit Held?

The contract should explain how the exchange deposit will be held.

Held as Stakeholder

The seller’s conveyancer normally holds the deposit until completion. It is not usually released directly to the seller before completion.

Held as Agent for the Seller

In some transactions, particularly certain new-build purchases, the contract may allow the deposit to be released or used before completion.

This can create additional risk if the seller or developer becomes insolvent. Ask your conveyancer how the deposit is being held and whether any new-build warranty protects it.

Using a Gifted Deposit

A deposit provided by parents or another family member is commonly called a gifted deposit.

The mortgage lender and conveyancer will normally require:

A signed gifted-deposit declaration.
Identification and address evidence from the donor.
Bank statements showing the source of the money.
Confirmation that the money is not a loan.
Confirmation that the donor will not own part of the property.
Approval from the mortgage lender.

Tell your mortgage adviser and conveyancer about a gifted deposit at the beginning of the transaction. Late disclosure can delay exchange.

Using a Lifetime ISA for the Deposit

Eligible first-time buyers may use Lifetime ISA savings and the government bonus towards the purchase price.

Current Lifetime ISA property-purchase conditions include:

The property must cost £450,000 or less.
The Lifetime ISA must have been open for at least 12 months from the first payment.
The buyer must use a mortgage.
The property must become the buyer’s main residence.
The ISA provider pays the money directly to the conveyancer.

The ISA provider can have up to 30 days after receiving the required information to release the funds. Tell your conveyancer early so the withdrawal does not delay exchange or completion.

Deposit Checks and Source of Funds

Your conveyancer must understand where the property deposit came from. Showing that money is in your bank account may not be enough.

You may need to provide evidence for:

Salary savings.
A family gift.
Inheritance.
Sale of another property.
Sale of shares or investments.
Overseas savings.
Divorce or legal settlement payments.
Business income or dividends.

Moving the deposit through several bank accounts shortly before exchange can make the checks more complicated. Keep clear statements showing the complete movement of the money.

When Should You Transfer the Exchange Deposit?

Your conveyancer will tell you when cleared funds must reach their client account. Do not wait until the planned exchange day.

Bank transfers may be delayed by payment limits, fraud checks, weekends or incorrect reference details. Contact your bank early if you need to transfer a large amount.

Fraud warning: Never rely only on bank details received by email. Verify the conveyancer’s account information using a trusted telephone number before transferring money.

What Happens to the Deposit at Completion?

The exchange deposit is credited towards the agreed purchase price.

Before completion, your conveyancer prepares a completion statement showing:

The property purchase price.
The exchange deposit already paid.
The mortgage funds expected from the lender.
Any remaining buyer contribution.
Stamp Duty Land Tax or Land Transaction Tax.
Legal fees, searches and other charges.
Leasehold or service-charge adjustments where applicable.

You transfer any remaining balance to your conveyancer before completion. The conveyancer combines the available funds and sends the required completion money to the seller’s conveyancer.

What Happens If the Purchase Fails?

Before Exchange

If the purchase ends before contracts are exchanged, there is normally no contractual exchange deposit for the seller to keep. Money already held by your conveyancer should usually be returned, subject to any outstanding legal fees or agreed charges.

After Exchange

If the buyer fails to complete after exchange, the seller may be able to:

Keep the exchange deposit.
Claim any unpaid balance needed to make up a 10% deposit, depending on the contract.
Charge contractual interest.
Claim legal costs or other losses.
Resell the property and potentially claim further losses.

If the seller fails to complete, the buyer may have legal remedies and may be entitled to the return of the deposit. Contact your conveyancer immediately if either party cannot complete.

Special Deposit Situations

New-Build Homes

Developers commonly request an exchange deposit shortly after reservation. Check the exchange deadline, long-stop date, deposit protection and whether the deposit is held as stakeholder or agent.

Shared Ownership

The deposit is normally calculated against the share you are buying, not necessarily the property’s full market value. Government guidance states that it is usually between 5% and 10% of the purchased share.

Cash Purchases

A cash buyer may still pay a 10% deposit at exchange. The remaining purchase money is then paid at completion without mortgage funds.

Exchange and Completion on the Same Day

The conveyancers may use different funding arrangements because exchange and completion occur together. The buyer must normally provide all required purchase funds before the transaction proceeds.

Exchange Deposit Checklist for Buyers

Confirm whether the contract requires a 10% or reduced deposit.
Check whether a reduced payment leaves you liable for the balance up to 10%.
Tell your lender about gifted or third-party funds.
Complete source-of-funds checks early.
Start any Lifetime ISA withdrawal in good time.
Confirm whether a chain deposit will be used.
Ask whether you need to provide a top-up.
Check how the deposit will be held.
Verify the conveyancer’s bank details independently.
Transfer cleared funds before the exchange deadline.
Review the completion statement for the remaining balance.
Do not authorise exchange until you can complete the purchase.

Final takeaway: Having a 5% mortgage deposit does not automatically mean the exchange deposit will be 5%. Confirm the required amount, contract liability and payment deadline with your conveyancer before agreeing an exchange date.

Exchange Deposit Explained