Everything you should know about Proof of Funds when buying a house

What is proof of funds?

When buying a property, your conveyancer will ask for proof that you have the monies available to pay for the balance of the purchase price (after taking into account any mortgage being used) plus legal fees and any Stamp Duty Land Tax payable, such as a bank account statement. You will also be required to show how you came to acquire these monies.

Why do I have to provide this under anti money laundering regulations?

Conveyancing transactions are highly susceptible to fraud and money laundering due to the large sums of money involved and which pass through conveyancing firms’ accounts every day, making them a potential target for fraudsters and criminals.

Conveyancers are under a legal duty to comply with Anti-Money Laundering Regulations which means they must verify where the funds being used to purchase a property have come from. They are required to ensure that the funds came from a legitimate source in order to prevent money laundering and fraudulent transactions from taking place. Conveyancers can be subject to criminal sanctions if the funds are subsequently revealed to have been acquired by criminal activity. Further bank statements may be required to comply with these regulations, especially in high-risk transactions.

In addition, if you are having a mortgage your mortgage lender will also require the conveyancer to check that the information you disclosed in your mortgage application is correct, and that you are not using any other loans or monies from third parties to fund your purchase.

I have already provided this to my estate agent/mortgage broker

Conveyancers are under separate, more stringent regulations and are unable to rely on the checks that your estate agent or mortgage broker may have carried out. Even if an estate agent asks for proof of funds, conveyancers will still need to perform their own checks.

What do I need to provide?

You will need to confirm the original source of the funds being used and also provide evidence of the trail of these funds over the last 6 months. Such evidence will include:

• Savings - bank statements showing the full trail of the funds over the last 6 months.
• Sale of another property - if you have instructed a different firm to act in connection with your sale, or if it was a previous sale, a copy of the completion statement from your conveyancer and a copy of your bank statement showing receipt of the funds and the trail of these since receipt or over the last 6 months.
• Gifted deposits – if you are receiving a gift from a third party such as a family member, your conveyancer will need to make contact with them in order to carry out the same level of checks, including verifying their identity. They will also require them to sign a Gifted Deposit Declaration confirming that the money is a gift, is not repayable and that they will have no interest in the property. The evidence showing the trail of the funds over the last 6 months must be provided, as well as details of its original source.
• Inheritance - a letter from the executors confirming your entitlement, together with copies of your bank statements showing receipt of the funds and the trail of these since receipt or over the last 6 months.
• Release of Pension – a copy of your pension statement or correspondence confirming the release of the funds, together with copies of your bank statements showing receipt of the funds and the trail of these since receipt or over the last 6 months.
• Dividends from a UK company - a board resolution/minutes declaring the dividend payment, a copy of your dividend certificate and copies of your bank statements showing receipt of the funds and the trail of these since receipt or over the last 6 months.
• Gambling winnings - documentation such as a receipt and bank statement must be provided to substantiate the funds' legitimacy.

Source of Funds and Proof of Funds

The source of funds and proof of funds are two separate but related concepts that play a crucial role in the property purchase process.

Source of Funds: This refers to the origin of the funds being used for the property purchase. Common sources include savings, inheritance, or a gifted deposit. Understanding the source of funds helps conveyancers ensure that the money is legitimate and not derived from illegal activities.

Proof of Funds: This refers to the documentation used to demonstrate the availability of those funds. Examples include bank statements, mortgage agreements, or investment portfolio statements. Providing proof of funds is essential for verifying that the buyer has the financial means to complete the purchase.

By clearly distinguishing between the source of funds and proof of funds, buyers can better understand the documentation required and ensure a smoother property purchase process.

Regulatory Requirements for Proof of Funds

• Anti-Money Laundering Regulations: These regulations require estate agents, solicitors, and lenders to verify the source of funds and ensure that the funds are not proceeds of crime. Compliance with these regulations is essential for preventing money laundering and maintaining the integrity of the property market.
• Money Laundering Directive: This directive requires estate agents, solicitors, and lenders to conduct due diligence on their clients and verify the source of funds. It mandates thorough checks to ensure that the funds used in property transactions are legitimate.

Adhering to these regulatory requirements is crucial for all parties involved in the property purchase process to avoid legal repercussions and ensure a transparent transaction.

Consequences of Failing to Provide Adequate Proof of Funds

Failing to provide adequate proof of funds can have serious consequences, including:

• Delayed or Failed Property Purchase: If the buyer is unable to provide adequate proof of funds, the property purchase may be delayed or even fail. This can result in significant financial and emotional stress for the buyer.
• Anti-Money Laundering Regulations: Failure to comply with anti-money laundering regulations can result in serious consequences, including fines and reputational damage. It is essential for buyers to provide the necessary documentation to avoid legal issues.

Providing comprehensive and accurate proof of funds is essential for a smooth property purchase process and to comply with legal requirements.

Providing proof of funds is a key part of the home-buying process, ensuring transparency and compliance with legal requirements. Having your financial documents ready in advance can help speed up your transaction and give sellers confidence in your offer. If you need expert guidance on the legal aspects of buying a property, our conveyancing team at Hegarty is here to help.

Contact us today for professional support and a smooth property purchase!