Before exchange, neither party in England and Wales is legally committed; either the buyer or the seller can withdraw without penalty. At exchange, the solicitors for each side post or transmit signed identical copies of the contract to one another, and from that moment the transaction is legally binding on both parties.
At exchange, the buyer pays a deposit, commonly around ten percent of the purchase price, though the exact amount is agreed in the contract. If the buyer withdraws after exchange they forfeit the deposit; if the seller withdraws they may owe the buyer compensation. The completion date, the day the remaining funds are transferred and keys handed over, is also fixed at this point.
As a practical example, an overseas buyer purchasing a London flat would reach exchange only after their mortgage offer is confirmed and their solicitor is satisfied with searches and enquiries. Once exchanged, it becomes safe to book international flights, arrange buildings insurance from exchange, and organise the currency transfer for the outstanding balance.
For overseas buyers, exchange is a critical milestone because currency fluctuations between exchange and completion can affect the remaining sum payable; investors are therefore advised to consider their currency transfer strategy before reaching this stage.