The Mortgage Guide: Exchanging Contracts

Exchanging contracts is exciting - that property you were viewing becomes yours. But, exchanging contracts can be tricky. The Information below will explain how to ensure it is as stress free as possible

Why do we exchange contracts?

Until you exchange contracts, neither side has any legal obligation to buy or sell the property, and both can pull out without any penalty (or only the deposit on agreeing offers, if one was made). Both buyer and seller sign identical contracts, but only when they are formally exchanged by the solicitors does the deal become legally binding. Between exchanging contracts and completion, either side will almost certainly pay major penalties if they pull out. However, it is extremely rare for anyone to pull out after exchanging contracts, and in practical terms, this is when you can breathe a sigh of relief - you can be pretty sure your house sale will go through.

Only when contracts are formally exchanged does the sale and purchase become legally binding

When do I exchange contracts?

You usually exchange contracts between 7 and 28 days before completion - although you can exchange contracts on the day of completion (see below). Because exchanging contracts means you are legally committed to buying the property, you have to make sure you have everything in place before hand, so that nothing can go wrong. You should only exchange contracts after:

  • You have agreed on an offer, including for fixtures and fittings
  • You have had the mortgage valuation and any surveys you want
  • You have been formally offered a mortgage in writing
  • You have arranged funding for the mortgage deposit
  • Your solicitor has done all relevant searches
  • You have organised building insurance. After you exchange contracts, you are liable for the property, and so you need to have buildings insurance in place before hand
  • You have sorted out funding for the contract deposit (traditionally 10% of the purchase price, but nowadays often less)
  • You have agreed on a date of completion for the sale, which will be written into the contract
  • You have read, understood and signed the contract
  • Once you have done these things you will agree on a date and time to exchange contracts - usually at midday on any given day. If you have one, your solicitor or conveyancer will exchange contracts for you.

    Can I exchange and complete on the same day?

    It is possible, increasingly common, and has certain advantages - it certainly speeds the process up, and means you don't have to pay a deposit on exchange of contracts. However, there are downsides - it is incredibly stressful, and you don't definitely know that you are moving until the day that you move, which makes arranging removals men and forwarding post more complex. If anything does go wrong, you don't have any time to put things right. You will need to have your house packed up with the removals men ready, while you are waiting to hear that contracts are being exchanged. If you are keen to go for this, the things to consider are:

  • It is much less riskier if you and the seller are chain-free, so there is no one else to mess things up
  • It is easier if you are a cash purchaser, so you don't have to worry about transferring money from the mortgage lender
  • Some mortgage lenders are happy with exchanging and completing on the same day, but others require a minimum period (such as five working days) between
  • You and the mortgage lender should transfer the funds to your solicitor the day before, to ensure there are no money transmission problems
  • You are making yourself more vulnerable to an unscrupulous seller demanding something extra at the last moment, as you will be all packed up and ready to go, and not really in a position to negotiate
  • How do I exchange contracts?

    This is usually done by both solicitors/conveyancers reading out the contracts over the phone (which is recorded) to make sure the contracts are identical, and then immediately sending them to one another in the post.

    If you are in a chain, your solicitor/conveyancer will do the same thing, but will only release it if all the other people in the chain are happy to go ahead. This means if one person pulls out or delays, everything gets held up. Once you have exchanged contracts you will be in a legally binding contract to buy the property. If you do not you will lose your deposit and you can be sued. Equally though, the seller has to sell or you can keep their deposit and sue them.

    What happens after exchanging contracts?

    Reaching the exchange of contracts is the difficult part - after that it should be relatively plain sailing. The next big step is completion - when you take possession of the property and can move in - but there are various things you should do before hand:

  • Final checks - you and your estate agent should visit the property just before you complete the sale to ensure that all the fixtures and fittings you agreed on are in place and that nothing has been damaged in the meantime
  • Send a copy of the title deeds to your mortgage lender who will hold them until you pay your loan off
  • Notify the freeholder if the property is leasehold.
  • Register the transfer of ownership with the land registry
  • Tell utility companies that it is now your property
  • Tell any banks that you have moved
  • Change your address on your driving license (Free)
  • Organise post forwarding
  • Now it's time to collect the keys to your new property and enjoy!
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