‘Most buyers understand the need to work out how they will fund their purchase,’ says Faye Green, Partner and Head of the residential property team with QualitySolicitors Parkinson Wright. ‘And, if you are taking out a mortgage, you will have supplied your lender with information about your finances. But it can still come as a surprise when the estate agent or your conveyancer asks for detailed financial information too. However, there is a good reason for this, and having the relevant documents to hand can help prevent an unnecessary delay to your transaction.’
Here Faye answers some of your questions about the financial information you may be asked for.
I have been asked for proof of funds. What is this?
When you make an offer on a property, the estate agent will usually ask for proof of funds. This serves two purposes. Firstly, it shows you can afford to buy it. This reassures the seller you can proceed with the transaction, which is particularly important if they are taking their property off the market. Secondly, the agent needs this information to comply with their obligations under anti-money laundering legislation.
What information will I need to provide for proof of funds?
You will need to show that you can afford to complete the purchase. So, this could be a mortgage agreement in principle, evidence of a recent property sale or investments you intend to sell, or bank statements. It could be a combination of several sources. If in doubt, ask the agent. They will be able to clarify.
Why is my conveyancer asking for the same information?
Your conveyancer will also ask for information about your finances. This can feel frustrating, especially if you have already given that information to the estate agent. However, your conveyancer is under a legal duty to do this.
Anti-money laundering regulations and the Proceeds of Crime Act 2002 require them to check your funds are from a legitimate source. They may refer to this as evidencing your ‘source of funds’. Your conveyancer will handle the completion monies directly and must carry out more rigorous checks than the estate agent. So, they may ask for additional information to that which you have already supplied.
How do I evidence my source of funds?
You must show where your funds come from so that your conveyancer can verify that they are legitimate. The evidence needed will depend on your individual circumstances. For example, it may take the form of:
- a mortgage agreement;
- bank statements if you are funding your purchase from savings, for example at least six months showing payments in;
- a completion statement or letter from your conveyancer if you are using proceeds from another property sale;
- statements from the sale of investments;
- a copy of your pension statement; or
- a copy of the estate accounts and grant of probate or conveyancer’s letter if you are using an inheritance.
Where appropriate, you should also provide a copy of the statement showing payment into your bank account.
It is important to show transparency. Remember your conveyancer needs to understand where the money comes from, not just the fact that you own it. For example, bank statements showing internal transfers between accounts alone will not suffice. You will also need to show the source of the funds, for example the receipt of a pension lump sum, regular salary payments, or a compensation payment. If in doubt, speak to your conveyancer. They will be able to clarify the requirements.
My parents are gifting me my deposit, what should I provide?
If someone else is gifting you part of the purchase price, this is known as a ‘gifted deposit’.
With a gifted deposit, you will have to show how the donors acquired the money. They will also need to sign a declaration confirming the money is not repayable and provide two forms of certified ID to comply with the anti-money laundering ID requirements. If you are taking out a mortgage, then your lender may have additional requirements. You should check this with them or your conveyancer in advance.
If you are relying on a gift from parents, or other relatives, then you should forewarn them of what they will need to provide.
Can I use cash to buy my next home?
Cash can be problematical because it is hard, sometimes impossible, to prove its origins are legitimate. Most conveyancers will not accept, or will place limits on, cash payments into their accounts. So, if you plan on funding your purchase with cash, or in foreign currency, speak to your conveyancer first.
If you have saved cash over the years, won money or received cash gifts in the past, it may be difficult to evidence its source. You should pay the cash into your bank account if you have not already done so, and collate as much evidence of its origins as you can. Your conveyancer may need to get a full picture of how you accumulated your overall wealth and general lifestyle and may ask for additional information.
How can I avoid these requirements from delaying my purchase?
The best thing you can do is to plan well ahead. It may take time to organise the necessary documents, particularly if your funding arrangements are unusual. Even if your finances are fairly standard, you may need to find certain documents or ensure they are in a particular format. For example, your conveyancer may require hard copies, or downloaded pdfs of bank statements rather than screen shots or photos. Being clear on these requirements will help ensure your purchase gets off to a flying start.
How we can help
Proving your source of funds may seem like an additional hurdle. We understand this and how much you want to get on with buying your new home. That is why we will always be clear about our requirements and be there to guide you through the process.
For further information, please contact Faye Green or a member of the residential property team on 01905 721600 or email worcester@parkinsonwright.co.uk
Offices at Worcester, Droitwich and Evesham.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.