UKH

Just a hypothetical that came up whilst talking to a friend about purchasing their first home. We've recently gotten on the mortgage chain ourselves and so had some recent perspective to offer, but a question came up that I wasn't 100% on: 

What happens if the deposit offered by the buyer is more than the value of equity the seller has in the property?

My initial answer was that the seller can only expect to receive "cash" up to the value of equity in the property and that the rest of the deposit would merely go to reducing the mortgage for the purchaser. Is it that simple? 

Nothing happens, the seller just gets, cash, more deposit than they have equity.  What are you trying to work out?

Your example may be an unusual circumstance, but it normally isn't relevant.  Any 'deposit' doesn't go to the seller, but is held by the solicitors involved.  On the buyer's side, it is just used as a percentage of the total bill (including fees, agreed amounts for furnishings or whatever) and the balance is made up by your mortgage.  On the seller's side, a similar account happens, with the incoming total being used to pay off the mortgage (etc.) with the balance being paid to the seller.  This may be more or less than the equity they theoretically hold, depending on the selling price they achieve in relation to the original purchase price.

Assuming there is no new mortgage for the seller, then final sale proceeds + some of the deposit goes to their mortgage company and they get the rest.

£400k house, £40k deposit, £380k existing mortgage.

You give £40k to their solicitors (it doesn't go to the seller). On completion the solicitors arrange the money transfers so £380k goes to the bank and £20k to the seller.

Did you think £20k went straight to the seller and the other £20k was kept back to return to the buyer?

In the UK, to provide traceability, all funds are transferred between the solicitors involved.

So, e.g. if purchasing: your deposit and your mortgage sum goes to your solicitor, who pays the sellers solicitor, who then pays the mortgage provider and then the seller any remainder (less fees)

No, its not relevant at all. For the seller, they will receive selling price less anything owing on their mortgage less selling expenses. How the buyer raises the funds required is of no concern to the seller.

Thanks all. Seems obvious now.