Is a house deposit non-refundable? What happens to your 10% if the sale falls through

By Vanessa Challess · Solicitor, qualified 2003 · Founder, Bonsai Law

Published 23 October 2026

"Is a non-refundable deposit on a house still a thing?" In England and Wales, a house purchase deposit is usually at risk once contracts have been exchanged. If you then fail to complete, the seller may be entitled to keep it and claim further losses. Before exchange, the position is different, although any reservation fee needs to be considered separately.

A quick definition first. In this post, "deposit" means the exchange deposit: the sum paid under the purchase contract, normally 10% of the price unless a smaller amount is agreed. That is not the same as your mortgage deposit, which is your overall contribution towards the price (for example, 5% with a 95% mortgage). The two figures are often different.

Do you pay a deposit when your offer is accepted?

Normally, no. For an ordinary private-treaty purchase, the contract must satisfy statutory requirements for writing, agreed terms and signatures by or on behalf of both parties (Law of Property (Miscellaneous Provisions) Act 1989, s.2). In the usual subject-to-contract transaction, the parties become bound when contracts are exchanged. In the ordinary subject-to-contract position, and leaving reservation agreements aside, either of you can usually withdraw before exchange without paying the other side anything.

That cuts both ways. A seller can accept a higher offer from someone else ("gazumping"), and a buyer will not normally have a claim against the seller simply because that happened. The Property Ombudsman's Code says member agents should not generally facilitate pre-contract deposits unless the buyer and seller wish to use a reservation agreement. If an agent is instructed to arrange a deposit, the terms governing how it is held, refunded, forfeited or credited towards the price must be clearly agreed in writing.

Our first-time buyer roadmap walks through the stages from offer to keys.

What happens at exchange?

The explanation below assumes that the contract incorporates the Standard Conditions of Sale without relevant amendments. Special conditions can change the position, so your own contract must be checked (Standard Conditions of Sale, condition 1.1.4).

Most residential contracts use the Law Society's Standard Conditions of Sale (5th edition, 2018 revision). Under condition 2.2.1, the buyer pays a deposit of 10% of the price no later than exchange.

A smaller deposit is often agreed, for example where the buyer has a 5% mortgage deposit. Agreeing a smaller deposit at exchange does not necessarily limit your liability to that smaller amount. If you fail to complete and the seller serves a notice to complete, condition 6.8.3 requires you to top the deposit up to the full 10% straight away.

The seller's solicitor usually holds the deposit as "stakeholder" until completion (condition 2.2.6), though condition 2.2.5 lets the seller use it towards their own purchase up the chain.

If the buyer pulls out after exchange, is the deposit lost?

Usually, yes. The courts have long treated a deposit as a guarantee that the buyer will perform the contract. As the Supreme Court put it, "If the purchaser breaks the contract, the vendor keeps the deposit", citing Howe v Smith (1884) 27 Ch D 89 ([Cavendish Square Holding BV v Makdessi [2015] UKSC 67](https://caselaw.nationalarchives.gov.uk/uksc/2015/67), para 234, Lord Hodge). A reasonable deposit can be kept without the seller having to prove any loss. Under the Standard Conditions, the process is:

after the contractual completion deadline has passed, a party who is ready, able and willing to complete can normally serve a notice requiring completion within ten working days, excluding the day the notice is given, and time then becomes "of the essence" (conditions 6.8.1 and 6.8.2);
if the buyer still does not complete, the seller can end the contract, keep the deposit and interest, resell the property and claim damages (condition 7.4.2).

The deposit is not a cap. If the seller's losses are larger, for example because the property resells for much less, the seller can claim damages for the difference (condition 7.4.2).

A deposit above 10% needs particular care. In Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, as summarised by the Supreme Court in Makdessi (para 235), the Privy Council held that a seller demanding more than the customary 10% must show special circumstances justifying it. An unjustified excessive deposit may lose its protection as a deposit altogether, rather than only the excess being repayable. The seller may still recover damages for the buyer's breach.

Can a court order the deposit to be returned?

Yes, in principle. Section 49(2) of the Law of Property Act 1925 allows the court to order repayment of a deposit when refusing specific performance or in an action for its return.

The discretion is not a general escape route for buyers who cannot complete. In [Midill (97PL) Ltd v Park Lane Estates Ltd [2008] EWCA Civ 1227](https://caselaw.nationalarchives.gov.uk/ewca/civ/2008/1227), the Court of Appeal emphasised the need for special or exceptional circumstances to justify departing from the parties' ordinary contractual expectations. A subsequent resale at a higher price was not enough.

Illustrative example: a buyer whose mortgage offer is withdrawn after exchange

Sam exchanges on a £300,000 house and pays an exchange deposit of £15,000 (5%). The lender then withdraws the mortgage offer after Sam changes jobs. Completion day passes. The seller serves a notice to complete, which also requires Sam to pay a further £15,000 straight away to make up the 10% (condition 6.8.3). Sam pays neither the extra £15,000 nor the balance, and cannot complete within ten working days. The seller ends the contract and keeps the £15,000 already paid, and can claim the additional £15,000 owed under the notice. If the house resells for £260,000, the seller's £40,000 loss plus costs exceeds the full £30,000, and the seller can pursue Sam for the difference. A court is unlikely to order repayment: a buyer running out of money is the ordinary case, not an exceptional one.

What if the seller pulls out after exchange?

Then the position reverses. The buyer can serve a notice to complete. If the seller fails to comply, the buyer can end the contract, get the deposit back with interest and claim damages (Standard Conditions of Sale, conditions 7.5.2 and 7.5.3). Alternatively, the buyer can ask the court to order the seller to go through with the sale. Our guide to avoiding delays when selling helps sellers stay out of this position.

Illustrative example: a seller who changes their mind

Priya exchanges on a £250,000 flat and pays £25,000. The seller's own purchase collapses and they refuse to complete. Priya's solicitor serves a notice to complete. If the seller fails to comply with a valid notice to complete, Priya can terminate and recover her deposit with accrued interest. She may also claim recoverable losses caused by the seller's breach. Alternatively, she can seek an order requiring the sale to proceed.

What about new builds and reservation fees?

A reservation fee is not a contract deposit; it holds the plot while the legal work starts. If the developer is registered under the New Homes Quality Code (version 2, March 2026), the reservation agreement must include a cooling-off period of at least 14 days, during which you can cancel for any reason and get the full fee back. After that, the developer may make deductions, but only those set out in the agreement (paragraphs 2.3 and 2.4). Read the agreement before you pay.

What about auctions?

At a traditional unconditional auction, a binding contract normally arises when the hammer falls. The deposit is commonly 10%, but a minimum amount may apply. Check the legal pack for the actual deposit and completion deadline: the Common Auction Conditions provide a fallback of 20 business days where no completion date is specified (RICS consumer guide to property auctions; RICS professional standard incorporating the Common auction conditions). If the buyer fails to comply with a valid notice to complete, the seller may terminate, forfeit the deposit, resell and claim damages.

The modern method of auction works differently. You usually pay a reservation fee to secure the property, with exchange to follow. Check the agreement carefully for when that fee is refundable and whether it counts towards the purchase price. The Property Ombudsman's June 2026 report identified reservation fees as a major source of complaints, especially where buyers assumed the fee was refundable or part of the price. Our auction legal pack guide covers what to check before you bid.

Is the law changing?

Possibly, in time. The government's home buying and selling reform roadmap (updated June 2026) plans legislation for "binding conditional contracts", with penalties for parties who cause a sale to collapse, but only after upfront sales packs are in place and after further consultation. For now, the law described above is unchanged.

Before you exchange: a checklist

Your mortgage offer is in writing, in date, and you have read its conditions.
You are not planning a job change or new borrowing before completion.
Your deposit funds are cleared and ready, and you understand any top-up if you are paying less than 10%.
Your survey is back and any issues have been resolved or priced in.
The completion date works for everyone in the chain.
Confirm with your conveyancer who bears the risk from exchange and what buildings insurance must be in place, including any existing block policy for a leasehold property.
You have read any reservation agreement or auction conditions you have signed.

If you are about to exchange, or worried about a deposit already paid, speak to a solicitor about your own purchase before you sign.

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Sources

Law of Property (Miscellaneous Provisions) Act 1989, s.2: https://www.legislation.gov.uk/ukpga/1989/34/section/2
Law of Property Act 1925, s.49: https://www.legislation.gov.uk/ukpga/Geo5/15-16/20/section/49
Law Society, Standard Conditions of Sale (5th edition, 2018 revision): https://www.lawsociety.org.uk/topics/property/standard-conditions-of-sale
Cavendish Square Holding BV v Makdessi [2015] UKSC 67: https://caselaw.nationalarchives.gov.uk/uksc/2015/67
Midill (97PL) Ltd v Park Lane Estates Ltd [2008] EWCA Civ 1227: https://caselaw.nationalarchives.gov.uk/ewca/civ/2008/1227
The Property Ombudsman, Code of Practice for Residential Estate Agents (March 2026): https://www.tpos.co.uk/wp-content/uploads/2026/03/TPOE27-9-Code-of-Practice-for-Residential-Estate-Agents-A4-March-2026.pdf
The Property Ombudsman, property auctions report news release (2 June 2026): https://www.tpos.co.uk/2026/06/property-auctions-generate-complaints-at-four-times-the-rate-of-the-wider-housing-market/
New Homes Quality Board, New Homes Quality Code, version 2 (March 2026): https://www.nhqb.org.uk/wp-content/uploads/2026/02/New-Homes-Quality-Code-V2-March-2026.pdf
RICS, Property auctions consumer guide: https://www.rics.org/content/dam/ricsglobal/documents/to-be-sorted/RICS-property-auctions-consumer-guide.pdf
RICS, Auctioneers selling real estate (incorporating Common auction conditions, 5th edition): https://www.isurv.com/downloads/download/133/auctioneers_selling_real_estate_incorporating_common_auction_conditions
MHCLG, Home buying and selling reform roadmap (updated 19 June 2026): https://www.gov.uk/government/consultations/home-buying-and-selling-reform/outcome/home-buying-and-selling-reform-roadmap