It is a tough time to buy a home in the UK. With prices sky-high and demand high, it can be really challenging to secure the perfect property for you and your family. Exchange and completion of contracts are the final stages of the process. It’s not always easy to complete the sale of a house.
Sellers want their property to go through the sale as quickly as possible, and buyers need security in knowing the purchase goes through. This stage brings both of those things, making it a priority for everyone when buying or selling a house in the UK.
There are lots of questions to ask, and you need to make sure that you follow all the rules set by law. First-time homebuyers might not understand what it means when exchanging contacts, or why they need a completion statement. But before you give up on finding that dream home, read this article about exchange and completion procedures when buying a house in the UK. It will help you make sure everything goes smoothly – from the exchange of contracts to completion.
Things to get done before exchanging the contracts
- Check the searches are complete.
- Check your ability to afford a mortgage deposit.
- To avoid any potential misunderstanding, it’s better to have your mortgage offer delivered in writing.
- Make sure you understand all the conditions and terms and ask your solicitor to explain anything that isn’t clear. Keep in contact regularly with your conveyancer to ensure there are no delays in processing the paperwork.
- Ensure you’ve established an agreement for the date of completion.
- To exchange contracts, you need to know what’s included in the sale price. Check that it covers all renovations you want to be done on a property before the exchange of contracts takes place.
- Verify the contract that your solicitor will send before signing and returning it.
- If the seller requires an upfront payment – contact deposit – to secure the property, you’ll need to check if you have enough funds.
- If a seller pulls out of negotiations before you exchange contracts, then you have no legal right to demand repayment for any costs incurred. However, you could take indemnity insurance to protect yourself against wasted expenditure. Your solicitor can advise on this issue.
What are contract exchange and completion?
What’s the difference between exchange and completion? The exchange of contract law usually legally binds the buyer and seller, whereas a completion is a day that they transfer physical ownership of your property. Once the buyer and the seller have exchanged contracts, they can’t back out of the deal.
When do the process of exchange start and end?
Once the buyer and seller have all the paperwork in place, contracts exchange hands. This should happen when all the terms and conditions have been agreed on both sides, including any legal considerations such as exchange of contracts for a property, completion date, and deposit payment.
Contracts are usually exchanged by both solicitors/conveyancers reading out the contracts over the phone. This is recorded by both of them to make sure the contracts are identical. The exchange process can also be done by hand at the desk with documents given to the buyer’s solicitor.
On exchange day, the buyer’s solicitor will usually be present to witness any exchange of contracts that take place. The seller is under no obligation to sell their property on exchange day and may choose not to do so. It is also possible for both parties to come together without exchanging contracts in order.
What is an exchange deposit?
When moving to purchase a first home, you’ll usually save up money to cover the downpayment and also finance your mortgage. On the day of exchanging contracts with the seller, their solicitor will collect 10% of the property value as an exchange deposit.
They’ll keep that money in their trust account until both parties sign the final completion agreement and exchange contracts. This means they haven’t started work on the property yet so it could take a long time.
If you have 5% of your home buy price available as a cash deposit, and 10% is too much for you, it should be possible to negotiate the exchange deposit down with your solicitor.
If you’ve got a bigger deposit than 10%, you’d normally pay 10% at the exchange and the remainder when you complete.
The exchange deposit only becomes a firm contract when the exchange is completed. So it’s important to ensure it is returned in full if you pull out before completion.
How long between exchange and completion?
Some people may not be aware of the time between exchange and completion. But it can sometimes take up to three months or more because there is a lot to do in this period. It can sometimes be affected by other parties in the chain, such as if the seller is waiting for a house purchase of their own to go through before moving out. The time between having an offer accepted and exchanging contracts is generally the longest part of the home-buying process.
The first point at which you’ll know if your offer has been accepted is when you exchange contracts with the seller. This will give both parties another 14 days’ breathing space (known as “cooling off”) should they change their minds about proceeding with the purchase.
The great thing about exchanging contracts is that solicitors will agree on a completion date. Solicitors can be held liable if they don’t meet this date, which means you don’t have to worry too much when making the purchase of your first house as long as you go through your solicitor.
After the exchange, there’s some paperwork that needs doing. The first is getting lender approval for mortgage lending purposes and checking whether any caveats on sale have expired; checking out home insurance policies etc., finalizing legal agreements between buyers.
What happens on the Completion date?
The exchange of contracts is the culmination of all your hard work and searches. This will be the moment when you finally get to exchange copies of documents with the seller. Then sign them in front of a solicitor or notary public. After that, you’ll take ownership from the seller. It includes pay any outstanding mortgage balances, then finally collect the keys to your new home.
As a buyer, your role on completion day is simple. You wait for a phone call from your conveyancer confirming that your mortgage and deposit have been transferred to the seller. He has to confirm and completion has taken place.
The estate agent is likely to hold the keys for you to pick up.
- On completion day, your solicitor will make sure all money transfers and other steps are complete.
- Ideally, all the buyers and sellers in the chain should complete on the same day. Otherwise, you might have to do a ‘handover period’ or wait for them to move into their new home before moving into your old one.
- If you have a share in a freehold property, find out how to register your name on the company register. Regarding shares in freehold properties, it is prudent that one registers their name on the company register.
What’s next after the Completion date?
It is important to understand that a completion date stipulates the exchange of contracts and not purchase. Usually, buyers are able to move into the property at this point. But it does not grant them any rights or ownership yet.
The money is transferred electronically between the legal firms’ bank accounts, each one triggering the next transfer. This takes time due to how carefully they must verify with your bank that you do actually have a deposit. Especially if you’re completing the sale of a previous home on the same day.
Once the seller has moved out of the property, you can take possession of the keys from the estate agent. And only after that, you can move into your new property right away.
If you’ve been at the end of the chain, make sure to have a contingency plan in place and not hand over keys without an alternative home lined up. If you are one of those first-time buyers, it’s important to understand these things when signing your contract so that you don’t run into any issues with legality.
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About the Author
CMO. MortgageLadder. Using the art and science behind marketing, I strive to deliver an enhanced brand experience to our users. My background as a data scientist allows me to make data-driven marketing decisions that support business growth. I’m fond of great books, fitness and sweets!