Factsheet: Conveyancing and mortgages
This factsheet contains information about:
- the process of buying and selling a house
- contracts of sale
This information relates to laws in Victoria, Australia.
Buying and selling property is a significant event in most people’s lives, and it is important to understand the steps along the way. This factsheet explains the process of buying or selling land, or a house and land, including information about conveyancing and getting a mortgage. It doesn’t cover buying or selling a business, farm or commercial property.
Who can do the conveyancing?
Conveyancing is the term used for changing the legal ownership of a property from seller to buyer.
So where can you get help?
Solicitors and conveyancing services
Most solicitors do conveyancing work for buyers as well as sellers, usually for a fixed fee. They give advice about all the steps in the transaction, and they can spot risks that a person without legal training could miss. Solicitors have insurance to cover any claims against them for negligence or dishonesty, and they are registered under the Legal Profession Uniform Law.
To make sure you are dealing with a qualified lawyer, you can check the online public register of legal practitioners and law practices at the Victorian Legal Services Commissioner’s website.
Conveyancing companies compete with solicitors. They tend to quote low, flat fees for sales and purchases. Their services are regulated by the Conveyancers Act 2006. A conveyancing company must be registered to charge fees, and they must also have insurance.
You can check the online public register at the Business Licensing Authority (BLA) to find out whether a conveyancing company is licensed. It is a good idea to check the business name, the type of licence and any conditions on the licence.
If you do your own conveyancing, you should buy an up-to-date conveyancing kit. These are advertised in the Yellow Pages under Conveyancing Services, and are available from major booksellers.
There are risks in DIY. If you sell and give false or incomplete information, the buyer may be able to cancel the contract. If you are a buyer, the greatest risk is finding a problem with the title or the building after you sign the contract or not properly understanding the ‘subject to finance’ clause.
If you are not using a conveyancer or lawyer and you have to sign a conveyancing document, you must go to an Australia Post outlet to be identified. The requirements for this verification of identity service are online (see ‘DIY requirements’ in Contacts and further information below).
Where to begin? Finding the money
Before buying property, you need savings to pay the deposit.
Most people keep their savings with the financial institution they use for the home loan. Choose one that gives a reasonable return and protects your money. Ask if it is covered by the government’s guarantee on deposits.
Selling your existing house
Selling before you buy is best. Your financial position is clearer and you have time to search for a new home. You might have to rent for a while before you find what you want, but you won’t be under financial pressure or be forced to sell. The proceeds of the sale should be kept in an accessible, interest-earning investment while you look for a new place.
If you are going to buy before you sell, you might be able to get a 90-day contract or longer on the purchase, and then sell on a 60-day contract or less. But if you fail to sell, you can still end up with a gap between paying out the purchase money and getting the sale money. You need to be certain that bridging finance will be available if this happens. Before you buy, organise bridging finance, know what it will cost, and what the terms are. Even if the settlement dates in the contracts are very close or identical, the sale of your existing property might not be completed on time, or even at all.
In some circumstances you may be able to negotiate to stay in your current property after settlement or move into the new property before settlement under a licence.
You may need to borrow money for a purchase. Before you apply for a loan, compare the different financial institutions. If you go ahead with an application, you will be given full disclosure statements, but you should compare financial products before you apply:
- What are the loan establishment fees?
- When and how the payments are to be made?
- What other administration charges are there?
- Are there any other periodic charges?
- What is the interest rate, and how is it expected to change?
- Is the rate is fixed, variable or mixed?
- Are the interest payments made in advance, or in arrears?
- Can extra instalments of principal be made during the period of the loan?
- Can you pay extra, and get it back later if you need it (a redraw facility)?
- If the loan has a fixed interest rate, is there an early repayment penalty?
- What is the lender’s policy on late instalment payments?
- Are other services available with the loan?
- Is mortgage loan insurance needed, and what will it cost?
- Is a minimum level of savings required to qualify for a housing loan?
Variable Rate Mortgage
This is the typical home loan. The lender can change the interest rate (and your repayments) as the market rates change. Your instalments are calculated to pay off the loan in an agreed period: usually 15 to 30 years. You can increase your repayments or pay out the loan without an excessive penalty.
Fixed Rate Mortgage
This allows the lender to charge a fixed rate for a shorter period, usually one to five years. If you want the loan to keep going, you need to renegotiate it. If you want to pay out the loan early, the lender will charge an early repayment penalty.
An early repayment fee is based on current interest rates, the amount you have repaid, and your loan size. The amount of the fee will generally be an estimate of the difference between what the lender would have received if you repaid all of the loan at the fixed rate, and what return they will get on their money if you repay the loan early.
There are other kinds of mortgages such as Indexed Rate Mortgage, Capped Rate Mortgage and High start and low start mortgages. These are less common.
You can borrow from several kinds of lenders:
- Banks lend up to 80% for 10 to 30 years. Your income is generally taken into account when calculating repayments.
- Mortgage brokers get funds from big insurance and trustee companies and other commercial institutions as well as banks. They have the mortgage documents prepared by the solicitors they choose, and all costs and disbursements are paid by you as part of the transaction costs.
- Insurance companies provide loans and usually require you to take out life insurance.
- Credit unions provide housing finance to their members at low rates.
- Finance companies lend on first and second mortgages. You pay higher interest and the loan period is shorter than bank and building society loans.
- Solicitor’s funds are available from some specialist law firms, usually on a short, fixed term at fixed interest. These are clients’ funds lent out for the client by the solicitor. They require only payments of interest for the duration of the loan. The capital must be repaid at the end of the loan or the loan must be renewed.
If the loan involves a company or a guarantee, the lender may require the guarantor to get a certificate from an independent lawyer saying they have received independent advice.
Your lender will give you a disclosure statement before you sign an application for a loan. If the loan is approved, the lender will go to the settlement of the contract and pay the loan money to the vendor.
The lender deducts all expenses of the loan (mortgage loan insurance premiums, stamp duty on the transfer, expenses involved in clearing the sellers title, lender’s solicitor fees and registration fees on the transfer and mortgage).
At settlement the lender takes all the documents. They will arrange payment of stamp duty and registration of the documents at Land Use Victoria.
When you are registered as the owner, the mortgage appears on the title. When the loan is repaid, the borrower is given a discharge of mortgage. You should register the discharge at Land Use Victoria immediately.
Sometimes vendors offer finance to buyers. This can happen in two ways. The first is for the vendor to give the buyer a transfer and put a mortgage on the property. This way is the safest for borrowers. The second way is by selling on terms. Terms contracts are heavily regulated by the Sale of Land Act 1962.
Tip: As soon as the contract is made, you should lodge a caveat on the seller’s title at Land Use Victoria. This will prevent any other person claiming the land and it gives public notice that you have an interest in the land. A caveat is particularly important if you are buying on vendor terms.
Negotiating the contract
Advice to buyers
You should never bid beyond what you think the property is worth on a fair assessment. Normally, the contract is a cash contract and provides for payment of the purchase price in two payments.
You get possession of the property when you pay the balance of the price at settlement and get a transfer of land from the seller. The settlement date is normally 60 to 90 days from the date of the contract. If you have borrowed money to buy the property, the lender will pay it to the seller at the settlement.
First home owners and concession card holders may be able to get a grant, or stamp duty reduction. The schemes change from time to time. You should check at the State Revenue Office (SRO) to see what is available to help you with expenses.
If you are planning to buy at an auction, ask for a copy of the contract and vendor’s statement before the auction so you can make enquiries about the property, get legal advice and arrange for a lender to approve funding in advance. You must be ready to sign on the day, with an unconditional purchase. There is no cooling-off period.
If you are buying with others, all of you must be ready to sign the contract at the auction. If this is not possible, arrange for a power of attorney.
Most auction contracts allow the seller to place bids, but the auctioneer must clearly state that a seller’s bid is being taken.
The auctioneer should announce when the property is ‘on the market’. That means the bidding has got to a price at which the seller will sell the property. Once this announcement is made, the auctioneer will knock the property down to the highest bidder. It will not be passed in for later negotiations.
As a bidder, set a maximum price and do not bid above it. You can decide not to bid at all until the auctioneer announces that the property is for sale or on the market. If the property is passed in, you can contact the agent and make a post-auction offer above or below the passed-in figure.
The law requires contracts for the sale of land to be in writing. The agent will expect the successful bidder to sign the contract immediately the auction is completed, and the seller should also sign. You will be legally bound when you sign the contract. The buyer must also give the agent a cheque for the deposit.
Be careful if you are signing a contract and expect to be able to nominate a different purchaser. You are usually still liable under the contract even if a different purchaser has been nominated. In addition, the nomination process may incur more legal costs and, if the nomination occurs after a certain period, stamp duty implications may arise.
Many properties are sold privately, not by public auction. If you are selling a property, your agent will ask you who your lawyer or conveyancer is. That person will prepare a contract and a vendor’s statement (a ‘section 32’ statement), which is part of the contract.
If you buy privately, you generally have a right to cool off. If the land is residential, you can end the contract during the next three business days after the contract is signed. You can also get back any money paid to the seller or the agent, less $100 or 0.2% of the price, which the seller is allowed to keep. The right is not available to corporate buyers or estate agents, or in auction contracts, or if the land is commercial or farming land.
Contract of sale
The contract is prepared by the vendor’s solicitor or conveyancer or, in some cases, by the vendor’s agent. You should read every clause carefully to ensure you understand it before you sign.
The contract continas the terms of the purchase, the parties, the price, how it is payable, the day of sale, a description of the property and any other items such as curtains, and the day that possession is available.
There is only one standard form of contract of sale of real estate in Victoria. Estate agents can only use the standard form.
Solicitors and conveyancers can use their own versions of a contract of sale. If the contract you are signing is not in the prescribed form you should read it very carefully before you sign it. Pay attention to any Special Conditions. This is where the contract differs from the usual wording of the prescribed form. Consider getting professional advice.
The deposit can be paid in one sum, or as a preliminary deposit and then the balance. As a buyer, the deposit should be the smallest sum you can negotiate. Usually, the seller will require you to pay 10% of the price at immediately.
Anyone who receives a deposit must put the money into a trust account or special bank account.
The deposit is usually held by the agent or solicitor until the contract is settled. If you are a seller and you want the deposit money sooner, you can get it released by giving a statement setting out details of any mortgages or caveats on the property, and asking the buyer to sign an authority to release the deposit. If the buyer doesn’t sign, the agent can release the deposit after 28 days unless there is an objection.
If the buyer breaks the contract, the seller is entitled to keep the deposit.
If you are buying land with someone else, the title will be shared. You can decide to be joint tenants or tenants in common.
If you are joint tenants your shares are equal. You both own the whole property together (jointly). If one of you dies, the other will get the whole property. You can’t leave it to someone else in your will. Most husbands and wives have jointly owned property.
Being tenants in common means your shares in the property are separate. Each owner can have a separate title for his or her share. Most investors have this kind of ownership, and the size of their share will be based on how much of the purchase price they paid. The shares can be unequal, and can be left to anyone in a will.
As soon as the contract is made, the buyer should lodge a caveat on the seller’s title. This is a legal notice at the Land Titles Office. It tells people you have an interest in the property and stops the seller registering any new mortgages or transfers of the land except to you, to complete your contract.
If you are going DIY, you need to download the fully interactive PDF form. It can only be filled in online and then printed for lodgement at Land Use Victoria. It can be saved to your computer, partly or fully completed.
The vendor should keep the house insured until settlement. If the house is destroyed or damaged before settlement so that it is unfit for occupation, you can cancel the contract by notice in writing to the seller. You must give notice within 14 days of becoming aware of the damage.
As a buyer, you should have insurance cover. Consider insuring the property as soon as you sign the contract, even before you settle.
New houses are covered by builder’s insurance for six years. The cover is for up to $300,000 to fix structural defects for six years, and non-structural defects for two years. All builders must have this to cover defective work. However, you can only claim under the policy if it is impossible to get the builder to fix the problem (e.g. if the builder is dead, insolvent, has disappeared or has failed to comply with an order of the Victorian Civil and Administrative Tribunal (VCAT) or a court).
Make sure you get a copy of the policy and a certificate of insurance covering your property when you settle the contract.
For information about the legal steps that must be undertaken before buying a property, read the factsheet called ‘ Buying and selling a property’.
Contacts and further information
Department of Environment, Land, Water and Planning (DELWP)
Land Use Victoria and Land Registration Services
8 Nicholson Street
Tel: General enquiries: 136 186
Land titles and property information, valuations, surveying, mapping and spatial data
Tel: (03) 8636 2456
Australia Post Verification of Identity service (VOI)
Guide to verification of identity for people not using a conveyancer or lawyer
Australia Post form: Non-represented party
Web (Australia Post): https://auspost.com.au/travel-id/identity-document-services/land-title-transfers/verification-of-identity-voi-service
Web (DELWP): www.delwp.vic.gov.au/property-and-land-titles/forms,-guides-and-fees
State Revenue Office
Duties Online registered users
Consumer Affairs Victoria
Due diligence checklist - for home and residential property buyers.
Business Licensing Authority
Victorian Consumer and Business Centre
113 Exhibition Street
Melbourne Vic 3000
Tel: 1300 135 452
Estate Agents Resolution Service (EARS)
Tel: 1300 73 70 30
Law Institute of Victoria
Victorian Legal Services Commissioner
Real Estate Institute of Victoria
This factsheet was based on an earlier Law Handbook factsheet.
Victoria Law Foundation acknowledges the assistance of Leila Chalk, Principal Solicitor at Forty Four Degrees.