Exchanging contracts is one of the final stages of buying a property. It is the point where you and the seller sign and exchange legal documents, and you pay your exchange deposit.

A contract is legally binding, which means it’s very hard to turn back afterwards. It’s important to make sure you and your conveyancer or solicitor have checked it very thoroughly.

This article takes you through everything you need to know about this crucial stage of buying a home.

Note that while the process works in roughly the same way in all parts of the UK, the terminology can differ, particularly in Scotland. This article mostly uses the English terms, but a brief explanation of how exchanging missives works in Scotland is included at the end.

What’s in a property contract?

The contract contains all of the details concerning the transfer of the property: the names of the buyer and seller, the agreed selling price and the deposit, the completion date, the title number and full address of the property plus any other conditions that are relevant to the sale.

Who writes the contract when you buy or sell a property?

Contracts are written by the conveyancer or solicitor who represents the seller. They will then send this to your conveyancer, who will check it carefully to make sure that you are getting exactly what you’re expecting.

What should I do before signing a contract?

Before signing a contract for a property you should always:

  • Have a conveyancer or solicitor read it carefully
  • Ask them about anything that is unclear
  • Have all of your searches, inspections and surveys performed
  • Have your mortgage offer in writing
  • Have an agreed date for completing the sale
  • Make sure you have a contract deposit ready if necessary
  • Have arranged buildings insurance

How does exchange of contracts work?

Once both parties are happy with the contract, you and the seller will sign identical documents. Your conveyancers or solicitors will then perform the exchange once they’ve received the signed contracts, typically over the phone – this is done by them reading out the documents, then sending them to each other. They’ll also agree on a completion date.

You’ll also have to pay an exchange deposit to the seller’s conveyancer, which we discuss in the next section.

At this point, the contract becomes legally binding – neither you nor the seller can back out without facing serious financial penalties.

Exchanging contracts can be more complicated if you are part of a property chain. For example, if the seller is buying a new house to move into at the same time, you may have to wait until this exchange is sorted out in order for yours to go through.

What is an exchange deposit?

An exchange deposit is a payment you make to the seller’s conveyancer to seal the deal, so to speak. Usually this is set at 10% of the value of the property, though this is negotiable, so may be more or less than this. If you pull out of the contract after signing, the seller will get to keep this money.

An exchange deposit is different from a mortgage deposit, but this doesn’t mean that you need to save up another chunk of cash in order to pay both. Usually, the exchange deposit is part or all of the mortgage deposit. They are named separately because they serve different purposes and are often different amounts, but the payment you make to your seller on exchange day will count as part of your mortgage payment. If there is still more left to pay after that then you will pay the remaining amount on completion day. For example, if you have a 10% exchange deposit and a 25% mortgage deposit then you will pay 10% on exchange day and 15% on completion day.

If you’re buying and selling at the same time, then usually your conveyancer will use the deposit that your buyer is putting down in order to buy your home, so you will not have to provide any funds yourself.

Can my Help to Buy ISA cover my exchange deposit?

The distinction between an exchange deposit and a mortgage deposit also matters if you are planning to use the bonus from a Help to Buy ISA to cover your deposit.

Help to Buy ISAs were introduced in 2015 as a way of helping first time buyers save a deposit. They are now closed to new customers, although existing savers can keep saving into their accounts until November 2029. Contributions made into these accounts are topped up by the government by 25%, so that for every £200 you pay in, the government will pay in £50. The maximum you can contribute is £12,000, to which the government will add £3,000.

Crucially, the bonus is only paid out upon completion and not at the point of exchange, meaning you cannot use it to directly cover your exchange deposit.

If you think you would need the extra 25% to cover your exchange deposit then you could consider taking out a personal loan for this amount, then paying it back when the purchase completes and you receive the bonus.

What is contract completion?

Completion is the very last legal step in the transfer of property. After completion, the contract is fulfilled and the property is legally transferred to the new owner.

As the buyer or seller, your role in contract completion is very simple. All you have to do is wait for a phone call from your conveyancer that confirms that your mortgage and deposit have been sent to the seller successfully. This means that the contract is complete.

On completion day, sellers will need to move out of the property, and buyers can pick up the keys to their new property and begin moving in.

How long do contract exchange and completion take?

Usually the longest wait is between having your offer accepted and exchanging contracts, as there are lots of steps every party needs to take and lots to get processed. This can be anywhere from a few weeks to a few months depending on the complexity of the sale. You can help speed things along by getting your surveys done promptly and responding to requests from your solicitor as soon as possible.

How long is the period between exchange and completion?

After contracts are exchanged, the conveyancers will agree on a completion date. This is often set at two weeks after the exchange, but it can be more or less than that too, for instance if you are in a hurry or, conversely, need a lot of time to prepare for your move.

Once a date is agreed it is set in stone, and parties can be sued for failing to meet the date. This gives everyone an incentive to get organised and be ready for the day.

Can I pull out of contract exchange?

If you decide you want to pull out of purchasing a property, then the best time to do so is before signing any contracts. If you try to pull out after you’ve signed then you will forfeit your exchange deposit and potentially have to pay additional interest to the vendor.

If you pull out beforehand then you won’t forfeit a deposit but you also won’t usually be able to get back the money you have spent on surveys or your conveyancer. However, it’s still a much better time to pull out than after you’ve exchanged. Only go ahead with an exchange if you are absolutely positive you want to make the purchase.

What happens if the seller pulls out of the contract exchange?

If the seller pulls out after exchanging contracts, then you get your deposit back, and can sue them for incurred costs, such as the amount you spent on your conveyancer or getting surveys done.

How does contract exchange work in Scotland?

In Scotland the process is similar, though the terminology is different. Solicitors complete the contract by exchanging letters called “missives”, and these are usually signed by your solicitor on your behalf. Once these are exchanged, the missives are “concluded” and the contract is considered legally binding.

Rather than a completion date, you will instead arrange a “Date of Entry” (DOE) or “Settlement Date”. Your solicitor will ask you to send them the purchase funds for the property prior to this date, so that they can officially make the purchase on the day. The seller then transfers the paperwork that legally gives you ownership of the property. All being well, the transaction is considered settled and you should have the keys to your property by 5pm at the latest.

Finally…

Finding a trustworthy conveyancer or solicitor to help you with the purchase of a property is crucial, as they will be able to flag up any potential issues with a contract and guide you through the exchange and completion process as painlessly as possible. For help finding a reliable conveyancer who will check your contract thoroughly, take a look at our article How to find a good conveyancer or solicitor.

Have you ever run into trouble with a contract on a property? How did you resolve it? We’d be interested in hearing from you. You can join the money conversation on the Rest Less community or leave a comment below.

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