1. At what points of the transaction do we need money from you?
In conveyancing transactions, the conveyancers acting for the parties deal with the funds to make sure these are passed on to the correct person, at the correct time. You should not give any money directly to the seller save a reservation deposit paid to a recognised developer.
Generally speaking, we will need you to provide us with money at the following stages of your purchase:
Once the seller’s conveyancers have confirmed that they are instructed and provided us with details of the property, you will need to send us money to cover the cost of the searches we need to carry out in relation to the property you are buying.
- Before we can exchange contracts, you need to send us the money for the deposit (see below How much is the deposit?)
- Prior to completion, the seller’s conveyancers will confirm the amount required to complete. This is usually the balance of the purchase price (that is, the purchase price less the amount of the deposit paid on exchange of contracts) and any additional amount payable in respect of contents included in the sale. Where you are buying a leasehold property, you may also need to reimburse the seller for ground rent, service charge and insurance charges that have been paid in respect of the period following completion.
Mortgage monies
Where you have a mortgage offer to fund the purchase then, when we have exchanged, we will ask your lender to send us the mortgage advance for completion. Although it means you would incur an extra day of interest on the mortgage advance, it reduces the risk of delays on the completion date if we ask the lender to send us the monies the day before completion (see below What happens if there is a delay in sending the money at completion?).
If the mortgage advance is less than the amount required to complete, you will need to send us the balance. It is important that we have the full amount as cleared funds by the day before the completion date, at the latest (see below What does “cleared funds” mean?).
Other sums payable on completion
We help you organise the payment of stamp duty and the registration of your purchase. Where you are using mortgage monies to complete then we must have control of these aspects. Therefore before we can complete, you will also need to send us the following amounts:
- The stamp duty land tax payable on the purchase; and
- The fees payable to the Land Registry to register the transfer of the property to you and any mortgage; and
- our fees and disbursements.
After exchange of contracts we will provide you with a statement detailing these items and showing the overall balance we need from you to be able to complete.
Please note that the amounts of stamp duty and land registration fees are based on the purchase price.
You must let us know, in advance, if someone else will be sending us money to be used for the transaction (for example, if a relative is contributing to the costs of buying the property). We cannot accept money from sources other than the firm’s clients, without carrying out certain checks beforehand.
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2. What does “Cleared Funds” mean?
When we refer to “cleared funds” we mean money that has cleared the banking system. For example, once a cheque is deposited in our client account, we generally have to wait at least ten working days before we can use that money to pay a third party. If money is sent by telegraphic transfer (often referred to as CHAPS payments), however, this is normally received on the same day as it is sent as cleared funds. Please be aware that it can sometimes take a few hours for the banking system to process these. Banks usually charge an administration fee to make CHAPS transfers.
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3. How much is the deposit?
This is normally 10% of the purchase price. If the mortgage advance is more than 90% of the purchase price then you may not have sufficient funds available to provide a 10% deposit. If so, please let us know as soon as possible so we can try to negotiate a reduced deposit with the seller’s conveyancers.
The seller may be prepared to agree to this but it will depend, in part, on whether the seller plans to use the deposit for a related purchase.
However, if a deposit of less than 10% is agreed and you are not ready to complete on the date fixed in the contract for completion, the seller may serve a notice to complete (see below What happens if there is a delay in sending the money at completion?). Once the seller serves such a notice, you would have to pay the balance of the 10% deposit immediately.
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4. What happens to the deposit when contracts are exchanged?
The deposit must be sent to the seller’s conveyancers when contracts are exchanged. If there is a chain of conveyancing transactions, the seller’s conveyancers may use the deposit for the seller’s related purchase.
The deposit gives the seller some security that you will complete the purchase. Once contracts are exchanged, you are legally bound to complete and if you fail to do so, the seller may be entitled to keep the deposit.
When the purchase completes, the deposit is released so this money (together with any interest that has accrued on the deposit and the monies sent on completion) can be used to pay off the seller’s mortgage on the property and for the seller’s related purchase.
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5. When do you need to start insuring the property?
If you are buying a freehold property, the contract will typically provide for the risk of damage or destruction of the property to pass to you as buyer once contracts have exchanged. The principal effect of this is that if the property is damaged or destroyed between exchange and completion, you will still be required to complete the purchase.
It is important that you arrange for the buildings insurance policy for the property to start at the point that contracts are exchanged. You should therefore start to obtain buildings insurance quotations now to avoid delaying exchange of contracts.
If you are using mortgage monies to compete and you do not insure through your lender the buildings insurance must meet their requirements, which will usually include the following requirements:
- To insure the property in joint names with the lender (which means that the policy is taken out in both your name(s) and the name of your lender) OR ensure that the lender’s interest is noted on the policy
- To make sure that all the following risks are covered in the insurance policy: fire; lightning; aircraft; explosion; earthquake; storm; flood; escape of water or oil; riot; malicious damage; theft or attempted theft; falling trees and branches and aerials; subsidence; heave; landslip; collision; accidental damage to underground services; professional fees, demolition and site clearance costs; and public liability to anyone else
- To arrange for the amount of buildings insurance cover to be at least the amount referred to in the mortgage offer. In addition, the amount of insurance cover must be index linked. This means that the insurance company will automatically increase the level of cover each year to allow for the effects of inflation
- Make sure that the excess payable by you under the policy does not exceed the maximum amount specified by your lender.
In addition, your lender may require a copy of the policy and written confirmation from the insurance company that it will notify the lender if the policy is not renewed, or is cancelled.
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6. What happens if there is a delay in sending the money at completion?
The contract will specify that completion monies have to be received by the seller’s conveyancers by a certain time (usually 1pm or 2pm) on the agreed completion date. We need to receive the money to complete the purchase from you and any lender in sufficient time to achieve this. If the money is not received by the seller’s conveyancers by the time specified in the contract (assuming the seller is ready to complete the sale):
- The seller is entitled to charge you interest on the balance of the purchase price, which is usually charged at a rate of four percent above Barclays Bank base rate. This interest has to be paid, in addition to other amounts due at completion, at the time completion finally takes place
(You may have to pay the seller further compensation as a result of your failure to complete the contract on time.)
- The seller may serve a “notice to complete”, requiring you to complete within a period of ten working days after the date of the notice. If you fail to do so, the seller can withdraw from the sale and keep your deposit. They may also issue proceedings seeking to compel you to honour the contract and complete the purchase and if you are unable to fund this then they might go as far as bankrupting you
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