Simultaneous exchange and completion may be the future after COVID-19
The pandemic has changed how we operate in many areas of law, but simultaneous exchange and completion could be a positive step for both property buyers and sellers.
The coronavirus pandemic put the brakes on the property industry back in April, with estimates that 373,000 property transactions worth up to £82bn were placed on hold. However, since then, the property market has bounced back, with last month seeing £37bn in property sales, the busiest month for a decade. This is likely to continue until at least March 31st 2021 when the stamp duty holiday finishes.
The property market has become a little less rigid over the past six months, with conveyancers, estate agents, mortgage brokers and lenders all having to come to terms with a market that is changing every week. There are also buyers and sellers who are in a much more precarious position, with many being made redundant due to the impending end of furlough and a coming recession.
This has meant that the age old issue of the “chain” of transactions in the conveyancing process has been highlighted. The chain has always been a point of contention in the property industry, and it is not unusual to see five or more transactions involved at once. If just one buyer or seller pulls out before the exchange of contracts, the whole process can fall down.
With these issues being emphasised in recent weeks and months, it is now becoming more common to have a simultaneous exchange and completion, and is something which may continue long after COVID-19 has disappeared.
What is the exchange of contracts?
When buying a house, the exchange of contracts is the process where the legal firms representing the buyer and seller swap the signed contracts, and the buyer pays a deposit. It is at this point that the agreement to buy or sell becomes legally binding.
The buyer’s solicitor will be in possession of cleared deposit funds, a mortgage offer, and buildings insurance policy, if required. The law firm at the “bottom” of the chain has to contact the next law firm up to confirm they are in receipt of a signed contract of sale and deposit funds. This process will continue up the chain, until the top of the chain has been reached.
What is the completion date?
A completion date is usually agreed either one or two weeks prior to exchanging contracts, or when contracts are exchanged. This is the official “moving day” or when you pick up your keys.
It is also the day that the buyer must, through their conveyancer, hand over all the remaining funds required to purchase the property.
Why is it beneficial to do this simultaneously?
While these two procedures can legally take place on the same day, historically, this has been avoided. This was due to the need to give the lender five working days between the two dates, while it is often helpful to give all parties some time to organise moving arrangements.
However, COVID-19 has introduced a significant amount of uncertainty and even a delay as short as five days could create very real risks. If, for example, a seller has to self-isolate, removers are unavailable, or transfers of funds are delayed due to furlough-related service issues, the whole chain becomes delayed.
This can cause unwanted additional costs such as additional legal fees, a payment of penalty interest under the contract and payments to removal firms, storage and temporary accommodation. At worst, transactions might not complete at all, with borrowers running the risk of losing their 10% deposit due to failing to complete within 10 working days of a notice to complete being served.
In addition to this is the uncertainty for lenders regarding affordability, it has always been the case that lenders retain the right to withdraw their offer of a mortgage if, for example, the lender becomes aware that the borrower has overstated their earnings, or there has been a change in the borrower’s circumstances. In the current economic climate, it would not be unusual for a borrower’s financial circumstances to change within a week.
This has been a known risk for many years. However, the current outlook is a little different. Both buyers and sellers are understandably nervous about exchanging contracts for completion in potentially a couple weeks’ time, when all it takes is one person in the chain to have their mortgage offer withdrawn.
This is why exchanging contracts on the same day as completion has become a common occurrence in the property market since lockdown. Dealing with the transaction through a simultaneous exchange and completion, it is possible to reduce any COVID-19 related risks and avoid the uncertainty of the period between exchange and completion.
It is, of course, still true that one party can pull out on this day meaning the whole chain collapses. However, this is much less likely to happen within 24 hours, as opposed to a week or two.
As is always the case, each property transaction will be different, and a one-size-fits-all approach should never be taken. Having said this, in many cases, the benefits of exchanging and completing on the same day present fewer risks to all parties involved, particularly in this turbulent time.
How can Percy Hughes & Roberts help?
At Percy Hughes & Roberts, our residential conveyancers help hundreds of people each year to move house. Our team can talk you through the legal process of buying your new home, whether you are a first-time buyer or a seasoned property owner. We can also discuss the new Stamp Duty rates and give you advice in relation to how it is paid and when.
>Each residential purchase or sale is dealt with from instruction to completion by the same conveyancer, so you always know who to talk to throughout the process.
If you would like any more information regarding property sales and purchases, you can contact our expert conveyancers by calling 0151 666 9090 today or by completing the "Get in touch" form. Click here for more information
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