For many people, exchanging contracts and completing a home sale may seem like the same thing – but they’re not.
When you agree to a new phone contract or insurance policy, you can use their services almost immediately. However, buying a property is much more complex. The handover process is drawn out, and things can still go wrong before the sale is completed.
This article explores the differences between exchange and completion and will help you understand what will happen – and what you should do – during this period.
What is ‘exchange of contracts’ and ‘completion’?
Exchange and completion are closely connected but must be considered separately. That’s because there’s often a significant time gap between the two events – ranging from a few days to a few months.
What is an exchange of contracts?
When a property purchase is agreed upon, both parties must sign contracts to confirm the sale. Solicitors representing the buyer and seller ‘exchange’ these contracts, which makes the sale legally binding. This then means:
- The buyer will lose money if they pull out of the deal.
- The buyer needs to pay a deposit to the seller.
The deposit paid to the seller at the point of exchange is usually 5-10% of the property’s price. The seller’s solicitor will hold on to this portion of the funds until the transaction is completed and they pass them on to the seller.
What is completion?
Completion comes after the exchange and marks the point where the keys are handed over and the seller vacates the property. After that, the property legally belongs to the buyer.
Completion involves:
- Transfer of money – from the buyer’s solicitor to the seller’s solicitor (and confirmation the money has been received).
- Transfer of ownership – the seller’s solicitor lists the buyer as the new owner with the land registry.
- Handover of the keys – the seller, or their estate agents, hands over the keys to the property.
How long is there between the exchange and completion?
It can often be a couple of weeks between exchange and completion. However, the buyer, seller, and solicitors must work together to agree on a completion date.
It may sound discouraging to wait, but that time is often packed with crucial activities – like getting ready to move house and doing last-minute checks.
However, there are many reasons why completion may be shorter or longer than a couple of weeks. For example, the seller may not have secured an onward purchase, or you might have mutually agreed to a shorter deadline.
If you are part of a larger property chain, you’ll all need to complete on the same day – so it is often challenging to find a day that suits everyone. This is why completion can take a while to be arranged between all the parties involved.
However, some circumstances nearly always require a more distant completion date. For example:
- To hand in a rental notice – if the buyer is renting a property, they’ll need to give their landlord several months’ notice that they’re moving out after the exchange.
- To buy a new build – new builds need to be signed off as finished before completion can happen. In the meantime, building delays and the final checks can push back the completion date. Once the building is signed off, the developers are required to provide a 2-week notice for you to complete the sale.
The maximum time between exchange and completion in the UK
While there’s no ‘maximum’ time between exchange and completion, there are some limitations. For example, most mortgage offers expire within 3-6 months. This period stretches from the time you received the mortgage offer, so you may be forced to complete it before it expires.
On the other hand, if you’re a cash buyer, then you’re not under pressure to set a completion date that suits a lender. Without pressure from the bank, it’s really up to you and the seller to pick a time that suits you both – this can be as long or short as you like.
Can you exchange and complete on the same day?
It’s possible to exchange and complete on the same day, but it’s not a great idea. That’s because you’ll have to make plans without any guarantee that the sale will go through – even if it seems likely. Before you consider this, it’s best to check that your mortgage lender allows it. Many set out a period of time – often a week – before you are allowed to complete the sale.
However, some specific circumstances may suit exchange and completion on the same day. For example, if the property is chain-free or if the property is bought in cash. This type of exchange is a lot simpler, making it feasible to complete the purchase on the same day if you’d like to.
Why choose to exchange and complete on the same day?
Many people like the idea because it shortens the house-selling/buying process. This is very attractive when you consider that both buyer and seller may have faced a long wait already. However, this is a risky decision to make, and a lot could go wrong.
The problems with exchange and completion at the same time
So what problems might arise? Often, issues like missing paperwork, mortgage problems or an unreachable solicitor can derail plans to complete on the same day. If this happens, you’ll face the annoying prospect of re-arranging removal services (for example), and asking for another day off work to do it again at a later date.
Unless you’ve got a good reason, it’s best to leave some time before the exchange and completion.
What can go wrong between exchange and completion?
Once you have exchanged contracts, you are legally bound to buy the property. If you back out, you’re liable to lose your deposit. So, by the point of exchange, it’s more a matter of ‘when’ you’ll get the property rather than ‘if’. However, there are several problems that can arise between exchange and completion:
- Problems on completion day – Most issues are small (though annoying). For example, the solicitor may act too slowly, or there might be a delay in payment. This could push back the date you complete by several days.
- Property issues & disputes – Sometimes, problems with the property come to light at this part of the process. For example, the surveyor could discover dry rot or suggest unforeseen fixes for the property, meaning the buyer has to reevaluate their purchase.
- Mortgage trouble – If the buyer has a drastic change in their financial circumstances, this could delay or derail the purchase. Though this is unlikely to happen, there can be numerous smaller financial problems. For example, the lender may want to query a modest drop in the buyer’s credit score before they release funds, or they may require some paperwork to be completed first.
- Legal challenges – Sometimes, legal issues need to be resolved before the property can be sold. For example, there can be problems with the contract or deed not being transferred correctly to the buyer, or disputes arising over property ownership.
- Job loss – You will need to inform the lender if you lose your job, even after you’ve exchanged contracts. Depending upon your financial circumstances, you might not be able to complete until you can demonstrate to your lender that you have the funds.
- Property chain problems – If someone further up the property chain runs into financial difficulty and can’t complete their sale, it’ll have a knock-on effect on you. This could derail – or at least delay – your property sale.
While serious issues can sometimes arise, it’s common to face minor delays which push completion back slightly. It’s best to factor this into your expectations when buying or selling a property so you’re prepared.
What happens between exchange and completion?
Each party has a few things left to do before completion – presuming that they don’t need to deal with any major problems. Here’s what the buyer and seller will need to do:
The buyer – The main aim of the buyer is to organise removal services, pack up their belongings and organise for the utility bills to end or, for example, to hand in their rental notice. In the meantime, their conveyancing solicitor will arrange the completion document and ensure that all funds are ready to be transferred.
The seller – The seller will also get ready to leave their property and make arrangements with a removal company for their furniture, fixtures and furnishings, which they’ve not agreed to leave behind. The seller’s conveyancer will work on the completion document and agree on redemption costs with the mortgage lender.
Temporary home insurance between exchange and completion
After the exchange of contracts, the buyer is usually responsible for insuring the property. For this, they will need to purchase temporary home insurance, which covers the interim period before they actually move into the home.
So, how do you confirm who is responsible for the insurance? Your contract with the seller should make this clear so you can see exactly what your obligations are.
Normally, house insurance lasts a minimum of a year (and often a lot longer). Many people opt for a year-long plan, but you’ll need ‘unoccupied home insurance’ if you want something even shorter. This type of cover lasts for as long as 60 days, specifically while you are not occupying the property.
And finally
Exchange and completion are a core part of the house-buying process. If you understand how they work, you’ll be prepared for any potential delays and can address potential issues in advance.
