What does ‘exchange of contracts’ mean?
Exchange of contracts is when the two legal firms representing the buyer and seller swap signed contracts, and the buyer pays a deposit.
At this point, an agreement to buy or sell a property becomes legally binding: once the buyer and the seller have exchanged contracts, they can’t back out of the deal.
In this guide, we explain what everyone needs to do before you exchange, typical timelines and processes, and what’s actually involved in exchange and completion.
Buying or selling in Scotland? The Scottish property system works differently. See our guides to buying a house in Scotland and selling a house in Scotland for more.
Preparing to exchange contracts: who does what?
Once an offer has been accepted, several things need to be done before contracts can be exchanged. It’s vital that you’re proactive, organised and communicative in order to avoid hold-ups and to reduce the risk of the sale falling through.
When does exchange take place?
Once the buyer and seller have all the paperwork in place, contracts can be exchanged.
The buyer and seller will sign identical documents. Your solicitors will then exchange the contracts at a set time – this is the moment when your agreement becomes legally binding and neither the buyer nor the seller can back out without major penalties.
Often, exchange takes place over the phone, with both solicitors reading out the contracts. They then immediately send the documents to one another.
If you’re in a property chain, the solicitors will wait until every party in the chain is happy to proceed before exchanging contracts. This means a hold-up anywhere along the line – for example, in the purchase of your seller’s new home – could delay all of the exchanges, including your own.
What is an exchange deposit?
When contracts are exchanged, you’ll need to pay an exchange deposit to the seller. This is usually 10% of the property price, which might be different from the amount of mortgage deposit you’re putting into the property.
If 10% is too much because, for example, you’re buying with a 95% mortgage and only have 5% available before your mortgage completes, your solicitor should usually be able to negotiate the exchange deposit down to 5%.
This might also come in handy if you’re relying on the bonus from a Help to Buy Isa to put towards your deposit. Help to Buy Isa bonuses only get paid after exchange, so in this instance you can again ask your solicitor to agree a smaller exchange deposit with the seller’s solicitor.
If you’ve got a bigger deposit than 10%, you’d normally pay 10% at exchange and the remainder when you complete.
What’s the exchange deposit for?
Its main purpose is to show the seller that you’re definitely going to buy the property. If you pull out of the deal after exchange, the seller can sue you to keep the exchange deposit.
If you’ve paid less than 10%, they could sue you up to this amount in some circumstances, as well as for compensation.
How long do exchange and completion take?
The time between having an offer accepted and exchanging contracts is generally the longest part of the home-buying process and can take anything from a couple of weeks to several months.
To help speed things along, make sure you’re organised, respond to queries quickly and tell the estate agent and solicitor if you’re going away.
The good news is that, when you do exchange contracts, the solicitors will agree a completion date. As legal firms can be sued if they fail to meet this date, they have a strong incentive to meet the deadline and so you can be fairly certain you will definitely complete on the day everyone agrees.
Completion dates are often set around two weeks after exchange, but this is just a guideline. If no one in the chain is in a hurry to move, you can ask for more time – and, occasionally, people complete in less than two weeks, too.
Leaving a longer gap gives you more time to organise a removals company, pack your belongings, arrange any essential works on your home and change your address information.
Setting a completion date
The amount of choice you’ll have on exactly when you complete will largely depend on how many properties there are in the chain and each buyer’s and seller’s circumstances. The longer the chain, the less flexibility there’s likely to be.
However, if your chain is relatively short and you do have some choice over when you complete, it’s worth being strategic about it.
For example, if you’re able to leave a couple of days between completing and moving in (either putting your belongings into storage or arranging a small overlap if you’re currently in a rental property), you can get a lot done in an empty property. Cleaning, redecorating and even hanging curtains are all easier to do before the boxes arrive.
When is the best day to complete?
Completing on a Friday is popular because it gives you the weekend to settle into the property, but this popularity does mean that conveyancing and removals firms tend to book up fast.
More importantly, if there are any financial holdups and your mortgage doesn’t end up being paid to the seller on the intended day, you could be stranded for a whole weekend and have to pay for your belongings to be stored.
For these reasons it’s worth suggesting a day between Monday and Thursday, when service providers and banks are less busy and you have a buffer if things go wrong.
What happens when you complete?
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 and completion has taken place.
However, this can take a while to happen and things can feel pretty tense before it does.
The money is transferred electronically between the legal firms’ bank accounts, each one triggering the next transfer, and this takes time – especially if you’re completing the sale of a previous home on the same day.
If you’re near the end of the chain, time may run out before all of the funds have been transferred. It’s worth having a contingency plan in place just in case you hand over the keys to your house without a new home to move into.
Assuming things do run smoothly, you can collect the keys from the estate agent and start moving in as soon as the seller has vacated the property.
Find out more: packing and preparing to move house
Once you’ve moved in
Once you’re in, it’s worth filing the property-related paperwork before it gets lost or forgotten about.
This will be a useful resource for any issues relating to the sale, and will also be really helpful when you eventually come to sell the home. If possible, make sure you keep:
- the lease, if it’s a leasehold property
- the sale particulars
- the Energy Performance Certificate (which is valid for 10 years)
- your buildings and contents insurance documents
- estimates from builders and tradesmen for work to be done
- safety certificates, warranties and guarantees
- correspondence from your estate agent, survey, legal firm and mortgage provider.
You’ll also need to register with utility providers (consider switching to save money) and update your address details with banks and other organisations. You can see everything that needs to be done in our moving house checklist.
You may also need to pay a stamp duty bill, which your solicitor will coordinate, though first-time buyers benefit from an exemption in some circumstances. You can use our stamp duty calculator to work out how much you’ll need to pay.
