What does exchange of contracts mean when buying a house in the UK?

Full answer

Exchange of contracts is the legally decisive moment in a residential conveyance in England, Wales and Northern Ireland (Scotland uses a different missives system). Before exchange, either buyer or seller can walk away at no legal cost, however far the process has run. At exchange the two signed contracts are swapped, a completion date is fixed, and the buyer normally pays a deposit - conventionally 10% of the purchase price - to the seller's solicitor. From that point the contract binds both parties. If the buyer pulls out after exchange, they typically forfeit the deposit and can be sued for the seller's losses; if the seller pulls out, they can be forced to complete or pay damages. Exchange only happens once searches, surveys, enquiries, and - for most buyers - a formal mortgage offer are all in place, because the commitment is irreversible. Completion is separate and usually a week or two later, though same-day exchange and completion is possible. On completion the balance of the price is transferred, keys are released, and the buyer takes ownership. Stamp Duty Land Tax (SDLT in England and NI; LBTT in Scotland; LTT in Wales) is triggered by completion, not exchange, and must generally be filed and paid within 14 days. Use the stamp-duty calculator to estimate that liability before you commit, as the bands and surcharges (for example the additional-property surcharge) materially affect your cash needs at completion. In a chain, all parties usually exchange on the same day so the linked transactions move together. The deposit you provide at exchange can come from your own funds rather than your mortgage advance, so plan liquidity carefully. Always confirm buildings insurance is in force from the moment of exchange, because risk in the property typically passes to the buyer then, even though you do not yet hold the keys.

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