What follows is an outline of the various stages of a straightforward residential new build where there is no chain and the buyer needs a mortgage.

STAGE 1

  • Offer accepted by Developer
  • Buyer instruct solicitors
  • Buyer makes mortgage application and arranges insurance*

STAGE 2

  • Developer’s solicitor prepares and sends contract documentation* to Buyer’s solicitor. The Buyer’s solicitor checks documentation and makes enquiries to ensure no legal problems with the property
  • Local search* sent to Local Authority by Buyer’s solicitor
  • Survey/valuation* undertaken on behalf of Buyer

STAGE 3

  • Buyer receives formal mortgage offer* from Lender
  • Buyer’s solicitor receives satisfactory search results and replies to enquiries
  • Buyer solicitor arranges for Buyer to sign contract and hand over deposit money*
  • Approximate date for completion* advised by Developer

STAGE 4

  • Exchange of contracts*

STAGE 5

  • Developer notifies property ready for completion
  • Completion*
  • Buyer inspects property
  • Buyer picks up keys to property from Developer
  • Buyer’s solicitor pays stamp duty and registers the Buyer as the new owner of the property with the Land Registry

KEY WORD EXPLANATION (Alphabetically)

COMPLETION

This is when the property changes ownership from the Seller to the Buyer. On the day of Completion the Buyer can pick up the keys from the Developer to move in. The balance of the purchase money is sent by the Buyers solicitors to the Sellers solicitors. Normally a Buyer will be able to collect the keys by about 1.00 p.m.

CONTRACT DOCUMENTATION

This is a package of documents sent by the Seller’s solicitors to the Buyer’s solicitors. This contains a copy of the title deeds, the purchase Contract further property information including relevant planning permissions etc. It will also include a plan needed for the Local Search (see below)

DEPOSIT MONEY

This is a sum of money which is payable to the Developer’s solicitors on Exchange of Contracts (see below). A maximum of 10% of the price is payable to the Developer’s solicitors on Exchange of Contracts. Any remaining balance is paid over on Completion (see above).

If a Purchaser’s mortgage is more than 90% of the purchase price the deposit which is usually accepted is the difference between the loan amount and the purchase price, e.g. 95% mortgage = 5% deposit.

One of the reasons the 10% deposit is paid on exchange of Contracts is to deter the Buyer from pulling out of the transaction after exchange of Contracts. If the Buyer does so then the deposit is lost.

EXCHANGE OF CONTRACTS

This is the stage in the process where the Seller and Buyer become legally bound into selling or buying the property. Until Exchange of Contracts there is no legal requirement for either the Buyer or the Seller to proceed.

Exchange is basically a telephone conversation between the Developer’s solicitor and the Buyer’s solicitor in which the date for Completion (see above) is formally agreed. This happens after the Buyer and Developer have each signed the Contract. The Deposit Money (see above) is paid to the Developer’s solicitors at this point by the Buyer’s solicitor. New home purchases normally have a 28 day Exchange of Contracts deadline.

A Buyer should not proceed to Exchange of Contracts until their solicitor is satisfied that all legal matters relating to the property are in order and until they have received a satisfactory Survey/Valuation (see below). Also very important is that the Buyer has received a satisfactory Mortgage Offer (see below) since until this is received the Buyer cannot be sure that their lender is willing to lend the money needed to complete their purchase.

You should not serve notice in respect of an existing Tenancy Agreement or confirm your instructions to a removal company until your Solicitor has confirmed the date for Completion on Exchange of Contracts.

INSURANCE

On Exchange of Contracts a Developer will normally insure the property with Completion. If you are a Buyer and are not arranging buildings insurance through your mortgage lender then you must make sure that your insurance is in force from Completion.

If the Buyer is having an interest only mortgage or is arranging mortgage protection insurance then they must ensure that the life insurance policy is ready to be started by Exchange of Contracts.

LOCAL SEARCH

This is an enquiry form which the Buyer’s solicitor will send to the appropriate Local Authority to find out, for example, whether the road outside the property is to be publicly maintained, whether proper planning permissions have been obtained for the property. The Search relates only to the property itself and does not give details of proposals to develop neighbouring property or land near to the property. The Search also does not give details of any parking restrictions which affect the local area. Buyers must therefore ask their solicitor to investigate specific matters if they have any concerns relating to land or property adjoining the purchase property. The Buyer’s solicitor can then ask more specific enquiries of the Local Authority.

Often the Local Authority will need an accurate plan of the property before they can process the Local Search. The Buyer’s solicitor will therefore often be unable to send off the Local Search until they have received the Contract Documentation (see above) from the Developer’s solicitors.

MORTGAGE OFFER

This is where the Buyer’s lender formally offers to lend to the Buyer the money required for their purchase. The Buyer’s solicitor also receives instructions to act on behalf of the mortgage lender when the Mortgage Offer is issued. The Buyer’s solicitor has no contact with the lender until the offer is issued. Exchange of Contracts (see above) will be delayed until the mortgage offer has been issued. The Buyer should therefore keep fully informed as to the progress of their mortgage application to make sure that their offer is not delayed.

SURVEY/VALUATION

The Buyer’s mortgage lender or their broker should advise the Buyer as to the types of valuations/surveys available. The Buyer’s mortgage lender will arrange their own valuation as part of the mortgage application to check that the property is structurally sound and so good security for their loan. The Mortgage Offer (see above) will not be issued until after the Survey/Valuation (see below) has taken place.

It is often possible for the Buyer’s mortgage lender to arrange for their own surveyor to carry out a Home Buyer’s Report or a full structural survey at the same time so that only one surveyor needs to attend the property.

With a basic mortgage lender’s valuation there is normally only a Contract between the surveyor and the mortgage lender. Therefore, if the surveyor misses a problem with the property then only the mortgage lender will be able to sue the surveyor. If however the surveyor also prepares a report for the Buyer then the Buyer would also be able to sue that surveyor.

If you are a Buyer you must ensure that your surveyor fully checks the condition of the property prior to Exchange of Contracts. In the normal course of undertaking their duties the Buyer’s solicitor will not check such matters as they are normally covered by the Survey. A mortgage lender’s valuation is not normally comprehensive enough in this respect as it is for the mortgage lender’s sole benefit.