Between exchange and completion – a note for buyers
24 April 2019
Many buyers, and sellers, believe that the stressful and lengthy part of a property transaction is the lead up to exchange and they would be correct.
However, there are a number of important points to consider after exchange in order to protect the parties in the lead up to completion.
A buyer should insure their new property from exchange as they are contracted to purchase the property regardless of any changes in the property's condition between exchange and completion. The property could burn to the ground and arguably, the buyer is still under a legal obligation to complete.
It is therefore normal practice for a buyer to start their main buildings insurance from exchange and simply add the contents insurance to the policy from completion.
However, there are a number of issues with this option:
- Occupation – most standard building insurance policies require that the property is occupied for a certain number of days and this would then be out of your control. A seller is not obliged to disclose if they are moving out of the property early.Alternatively, if the sale is as a result of probate 9and may be empty in reality) then the standard policy would certainly not be suitable.
- Most providers allow you to obtain a quote and order the policy online but many do not specifically ask if the person taking out the policy is the home owner or occupier and yet this is often a requirement of the underlying policy.
A mortgage offer needs to be issued before completion and must not expire before completion. However, we would always advise our clients to ensure that the mortgage offer is in place before exchange to ensure that there is no risk of contracting to purchase the property without a guaranteed source of funds.
However, there are a few times where this is not enough to protect the buyer and there may be issues before completion which result in the offer being withdrawn or expiring.
A mortgage offer is issued on the financial situation of the borrower(s) at the time the application is submitted. The lenders may not run further checks but there is a requirement that the borrower discloses any change of circumstance and any reduction in income could result in the mortgage offer being withdrawn. One example would be loss of employment and another would be the death of a joint borrower where the remaining borrower did not have enough income to support the loan amount. In both these situations, the lender could withdraw the offer and, if this occurred after exchange, the buyer would still be legally bound to purchase the property. In the event that they cannot find the funds elsewhere, they would forfeit their 10% deposit.
A mortgage offer will only be issued for a fixed length of time, usually 6 months, but some are less than this and it is important to ensure that completion takes place before the expiry date. The main situation where this might not happen is when purchasing a new build property as the completion date is usually not fixed. A developer can only complete once the property has been signed off by Building Control and they will therefore not open themselves up to the liability of failing to complete if the sign off is delayed. A new build purchase contract will normally have an Anticipated Completion Date and a long stop date of around 6 months. Once the completion certificate is issued, they will then serve notice on the buyer to demand completion within a fixed period of time, usually 2 weeks. This means that there is a possibility that your mortgage offer will expire before completion takes place and you cannot guarantee that the offer will be extended and, more importantly, if your circumstances have changed you may not be able to get another offer issued in time, if at all.
Other points to consider
We have not covered all the issues which can arise at this stage in the transaction but there are a couple of other considerations which can ensure that the matter progresses smoothly to completion:
- It is important to discuss the arrangements you have in place for transferring the completion funds to your solicitor. Some banks only allow you to transfer a set amount each day online and other banks can take a number of working days to transfer funds. Please speak to your solicitor as early as possible to ensure that there is enough time.
- Help to Buy ISAs also form part of the pre-completion tasks and again, it is important to ensure that you have enough time to close your ISA accounts and receive the closing letter so that your solicitor can request the ISA bonus ahead of completion.
Please remember that no question is too small and we are happy to discuss any concerns or issues at any stage in the property transaction.