One of the property terms that can be confusing is the word ’deposit’, especially among first-time buyers who have previously been renting.

What does it actually mean and what should you look out for?

For example, consider this statement: ’When Juan got his deposit back, he had enough for his deposit, although this was not enough to cover his deposit.’

What on earthâ?¦.!?

There are at least three uses of the word ’deposit’ that, unless understood in their respective context, can be a little bit confusing.

Here we look at the three different uses of the term in turn and explain what you, as a prospective buyer, need to know about them.

1. The ’rental’ deposit. 

This is the amount of money held by a landlord or letting agent as security against damages.

It is returned to a tenant at the end of the tenancy.

This is subject to the property being returned in good condition.

2. The ’mortgage’ deposit.

This is the difference between the purchase price of a property and the amount of mortgage available on that property.

So, if a buyer qualifies for a 95% mortgage (i.e. 95% of the agreed purchase price) they would need to have raised a ’deposit’ (or ’cash’ even though this may not be physical pound notes) for the remaining 5%.

3. The ’contract’ deposit.

When contracts for the sale of a property are exchanged (i.e. the deal becomes contractually binding, meaning, you are in contract to legally buy the property) it is usual for a sum of money to be put down prior to the whole amount becoming due on completion a few weeks later.

This contract deposit is usually 10% of the purchase price.

However, it is not uncommon, for practical reasons, for the amount actually required on exchange to be for a smaller amount, or even nothing, as a concession, even though should the buyer fail to complete, the full 10% would still become payable contractually.

I would reiterate though that in most cases, 10% of the agreed purchase price is usually put down as a ’deposit’.

It’s quite rare to deviate from this.

So the strange statement that we made at the start of the column might now be better understood as meaning: ’When Jake got his rental deposit back he had enough for his mortgage deposit, although this was not enough for his contract deposit.’

Or maybe it’s still confusing?

If so, or if you have any other questions about terminology used in the Isle of Man property market, don’t let it bamboozle you, don’t sit there and worry about the unknown!

We’re here to help you so please feel free to contact us on (01624) 645555 should you ever have any questions about the terminology or processes involved in buying or selling a property.