Exchange of contracts is the legal moment at which both the buyer and seller become contractually committed to the transaction. Before exchange, either party can walk away without penalty. After exchange, withdrawal has serious financial consequences.
What happens at exchange
Your solicitor and the seller's solicitor simultaneously date and sign identical copies of the contract — usually over the phone. At the same time, the buyer's solicitor transfers the exchange deposit (usually 10% of the purchase price) to the seller's solicitor. The completion date is agreed and written into the contract.
What it means for you
Once contracts are exchanged:
- You are legally obligated to complete the purchase on the agreed date
- If you withdraw, you forfeit your deposit
- The seller can also claim additional damages if your withdrawal causes them losses above the deposit amount
- Your buildings insurance must be active from the exchange date
What it means for the seller
If the seller fails to complete after exchange, they must return your deposit with interest. You can also sue them for any additional losses — costs of temporary accommodation, higher price paid elsewhere, legal fees.
The deposit at exchange
The exchange deposit is typically 10% of the purchase price. If your mortgage deposit is less than 10%, your solicitor will need to negotiate a reduced exchange deposit with the seller's solicitor — this is common and usually agreed readily.
The exchange deposit is separate from your mortgage and your savings deposit. Make sure it is in your solicitor's client account before the expected exchange date.
This glossary entry is for general information. Always consult your solicitor for advice specific to your transaction.