Protection from failing to complete your house purchase on time

The home-buying process can be complicated and full of possible problems, especially when it comes to timely completion. One of the biggest risks for buyers is failing to complete the purchase on time, which can result in financial penalties, legal issues, and stress.

We can help guide you through essential steps to protect your investment. Be proactive and well-informed to safeguard yourself from issues and delays for a successful completion.

When do you become contractually liable to buy a house?

Exchange of contracts is the point where both buyer and seller become contractually bound to complete. If you don't complete after an exchange of contracts then you are financially liable for costs and remedies under the contract.

Whether it is a solicitor mistake, a change in circumstances, building work, or simply a change of heart, it can be tough to protect yourself from your house purchase falling through, however, here are our top 4 tips on what you can do.

Reduce the time between exchange and completion

There are pros and cons to same-day completion, 1-2 week completion, 1-2 month completion, and a completion on notice. The challenge is that the longer the time between exchange and completion, the greater the chance of either the buyer or seller pulling out.

For maximum security, aim to minimise the time between exchange and completion. A shorter period reduces the chance of issues.

To remove any chance of a failed completion you can exchange and complete on the same day, however, this is fraught with stress and most long property chains simply won't agree to the same simultaneous exchange and completion due to logistical demands.

Evict tenants before the exchange of contracts

The seller must give vacant possession before completion takes place. If a seller has a tenant that doesn't vacate before the contractual completion date then the seller is breaching the exchange contract.

The best advice is to only ever exchange once the tenant has moved out. This will also help you to make sure the property is empty of any of your or the tenant's possessions and that the buyer's new property is in good condition.

Exchange with an 'in-date' mortgage offer

When purchasing a new-build property (specifically for newly built properties without a pre-agreed completion date), you typically need to exchange contracts off-plan, before the property is finished. After the property is completed, you will receive a notice to complete, and then you will have 10 working days to finalise the purchase. The challenge with this is do you:

• get a mortgage offer for exchange of contracts that lasts for 6 months and may expire before the property is built and you are served notice to complete; or
• exchange without a mortgage offer on the assumption you'll get a mortgage offer when you are served notice to complete?

Some solicitors may not allow you to proceed with the property purchase without a mortgage offer. In our opinion, this is the best advice, as you should not exchange contracts without ensuring your financial ability to buy the property.

Whether or not you receive a mortgage offer, you face the risk of needing to secure a new mortgage offer when you are given notice to complete, and this needs to happen quickly. With only 10 days' notice to complete and a further 10 days' contract notice to complete, you could risk losing your 10% deposit to the developer if you are unable to secure a new mortgage offer in time.

Limit your potential losses

The risk of a transaction failing to complete after an exchange of contracts is very small and is normally related to an exceptional circumstance. There are however good practice things you can do to limit the risk of potential losses when a transaction falls through such as:

No sale no fee

Legal fees can be very costly if a transaction falls through which is why you want to have some kind of legal obligation to protect yourself from these costs. Conveyancing fees are often covered under a No sale no fee, however, these contracts can come with caveats that still leave you exposed.

Conveyancing cost protection insurance

There are several insurance providers offering insurance coverage to protect against the costs of failed transactions. Although the cost of losing your 10% deposit isn't covered in any of the insurance policies, you can insure your legal, mortgage valuation and conveyancing search costs.

The insurance cover and policies should be checked to see if you can reclaim any of the insured costs if you have already incurred the cost at the point of taking out the insurance.

Estate agent fees

Check to see if you are liable for estate agent fees on your sale if you fail to complete the sale. If the terms are that you are liable for the estate agent's fees for selling the property from the date of completion then you should see if this can have a caveat to allow for if the transaction fails to complete.

Arrange buildings insurance cover

One critical step in ensuring a smooth property transaction is arranging buildings insurance cover. In the UK, for example, it is generally a requirement from mortgage lenders that buildings insurance is in place from the date of exchange of contracts. This safeguard is essential as it protects against various risks, including fire, flood, and other structural damages that could jeopardise the property.

Failing to complete your house purchase on time can lead to significant financial and legal complications. By securing buildings insurance, you not only comply with lender requirements but also shield yourself from potential costs and delays associated with damage to the property before completion.

Having a valid insurance policy ensures that, in the event of an unforeseen incident, any necessary repairs or rebuilding costs are covered, allowing you to focus on finalising your purchase without additional stress.

Remember, the right buildings insurance policy should align with your specific needs and the property's characteristics. It’s wise to compare different insurers and coverage options to find the most suitable and comprehensive policy.

Other types of insurance cover

In addition to buildings insurance, it is essential to consider home insurance, contents insurance, and comprehensive house insurance when preparing for your property purchase. Home insurance typically combines buildings and contents coverage, offering a complete package that protects both the structure of your home and your personal belongings inside it.

Contents insurance is particularly important as it safeguards your possessions against theft, fire, and other damages. Securing this coverage before completion ensures that any potential mishaps do not lead to financial loss or additional delays in your moving process. House insurance, often used interchangeably with home insurance, encompasses both buildings and contents insurance, providing a firm safety net.

Failure to arrange insurance can lead to significant setbacks. For instance, if an incident occurs after exchanging contracts but before completion, you could face delays in moving in and increased costs to replace or repair damaged items. Ensuring you have the right coverage from the correct insurance provider helps mitigate these risks, keeping your conveyancing process on track and stress-free.

A buyer cannot rely on a seller's insurance policy because the seller may not have insured the property at all, as there is no legal obligation for them to do so. Additionally, if the seller did have insurance, they would likely have arranged for its cancellation upon the exchange of the contract.

Failing to complete after the exchange is very rare

Failing to complete your house purchase is very rare and you should try not to worry about this because if it happens, the circumstances are often exceptional and out of your control.

You can rely on the fact the legal process in England and Wales is structured so that the worrying part is up to the exchange, but from the exchange contracts onward you can relax knowing completion is going to fly through in 99.99% of completions. From the moment contracts are exchanged, both parties are legally obligated to proceed with the purchase on the planned completion date.

If you are working with our solicitors then please call us if you are worried, for any reason, if your purchase is going to fail to complete - 0333 344 3234 (local call charges apply).